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Faulty Analysis Comparing Budgeted Amounts to Actual Amounts (Implicitly Assumes All Income Statement Items Are Fixed)   The other common error when comparing budgets to actual results is to assume that all costs are variable. A report that makes this error appears in  Exhibit 9–10 . The variances in this report are computed by comparing actual results […]

Some Common Errors LEARNING OBJECTIVE 6 Understand common errors made in preparing performance reports based on budgets and actual results. We started this chapter by discussing the need for managers to understand the difference between what was expected to happen—formalized by the planning budget—and what actually happened. To meet this need, we developed a flexible

HOSPITALS TURN TO FLEXIBLE BUDGETS Mary Wilkes, a senior managing director with Phase 2 Consulting, says that hospitals may have to pay as much as $300,000 to install a flexible budgeting system, but the investment should readily pay for itself by enabling “more efficient use of hospital resources, particularly when it comes to labor.” One of

Flexible Budget Based on More than One Cost Driver   This revised flexible budget based on both client-visits and hours of operation can be used exactly like we used the earlier flexible budget based on just client-visits to compute activity variances as in  Exhibit 9–5 , revenue and spending variances as in  Exhibit 9–6 , and a performance report

Flexible Budgets with Multiple Cost Drivers LEARNING OBJECTIVE 5 Prepare a flexible budget with more than one cost driver. At Rick’s Hairstyling, we have thus far assumed that there is only one cost driver—the number of client-visits. However, in the activity-based costing chapter, we found that more than one cost driver might be needed to

Performance Reports in Cost Centers Performance reports are often prepared for organizations that do not have any source of outside revenue. In particular, in a large organization a performance report may be prepared for each department—including departments that do not sell anything to outsiders. For example, a performance report is very commonly prepared for production

Performance Reports in Nonprofit Organizations The performance reports in nonprofit organizations are basically the same as the performance reports we have considered so far—with one prominent difference. Nonprofit organizations usually receive a significant amount of funding from sources other than sales. For example, universities receive their funding from sales (i.e., tuition charged to students), from

HOTELS MANAGE REVENUE AND COST LEVERS AMID RECESSION When the economy spiraled downward in 2009, it forced hotel chains to make tough decisions in an effort to achieve their profit goals. For example, Wyndham Hotels and Resorts decided to take sewing kits, mouthwash, and showercaps out of its rooms—instead, requiring customers to ask for these amenities at

MANAGERIAL ACCOUNTING IN ACTION The Wrap-up   · Victoria: Let me show you what I’ve got. [Victoria shows Rick the flexible budget performance report in  Exhibit 9–7 .] I simply used the cost formulas to update the budget to reflect the increase in client-visits you experienced in March. That allowed me to come up with a better benchmark

Performance Report Combining Activity Variances with Revenue and Spending Variances   Note two numbers in particular in the performance report—the activity variance for net operating income of $13,710 F (favorable) and the overall revenue and spending variance for net operating income of $9,280 U (unfavorable). It is worth repeating what those two numbers mean. The $13,710 favorable activity variance