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A Performance Report Combining Activity and Revenue and Spending Variances Focusing first on revenue, the flexible budget indicates that, given the actual level of activity, revenue should have been $198,000. However, actual revenue totaled $194,200. Consequently, revenue was $3,800 less than it should have been, given the actual number of client-visits for the month. This discrepancy is […]

Revenue and Spending Variances from Comparing the Flexible Budget to the Actual Results   IN BUSINESS: STATE OF THE UNION SPEECH HURTS CORPORATE JET INDUSTRY In December 2008, Detroit auto executives flew private corporate jets to Washington D.C. to plead for billions of taxpayer dollars to save their companies. The public outcry was loud and

Revenue and Spending Variances LEARNING OBJECTIVE 3 Prepare a report showing revenue and spending variances. In the last section we answered the question “What impact did the change in activity have on our revenues, costs, and profit?” In this section we will answer the question “How well did we control our revenues, our costs, and

EXHIBIT 9–5 Activity Variances from Comparing the Planning Budget to the Flexible Budget Based on Actual Activity   For example, the budget based on 1,000 client-visits shows revenue of $180,000 (= $180 per client-visit × 1,000 client-visits). The flexible budget based on 1,100 client-visits shows revenue of $198,000(= $180 per client-visit × 1,100 client-visits). Because the salon had 100

LEARNING OBJECTIVE 2 Prepare a report showing activity variances. Part of the discrepancy between the budgeted profit and the actual profit is due to the fact that the actual level of activity in March was higher than expected. How much of this discrepancy was due to this single factor? The report in  Exhibit 9–5  is designed to

EXHIBIT 9–4 Flexible Budget Based on Actual Activity   We can see from the flexible budget that the net operating income in March should have been $30,510, but recall from  Exhibit 9–2  that the net operating income was actually only $21,230. The results are not as good as we thought. Why? We will answer that question shortly. To summarize to this

How a Flexible Budget Works A flexible budget approach recognizes that a budget can be adjusted to show what costs should befor the actual level of activity. To illustrate how flexible budgets work, Victoria prepared the report in  Exhibit 9–4  that shows what the revenues and costs should have been given the actual level of activity in March. Preparing the

MANAGERIAL ACCOUNTING IN ACTION The Issue   · Victoria: How is the budgeting going? · Rick: Pretty well. I didn’t have any trouble putting together the budget for March. I also prepared a report comparing the actual results for March to the budget, but that report isn’t giving me what I really want to know. · Victoria: Because

EXHIBIT 9–1 Planning Budget   Note that the term revenue is used in the planning budget rather than sales. We use the term revenue throughout the chapter because some organizations have sources of revenue other than sales. For example, donations, as well as sales, are counted as revenue in nonprofit organizations. Rick has identified eight major categories of costs—wages and

Deficiencies of the Static Planning Budget To illustrate the difference between a static planning budget and a flexible budget, consider Rick’s Hairstyling, an upscale hairstyling salon located in Beverly Hills that is owned and managed by Rick Manzi. The salon has very loyal customers—many of whom are associated with the film industry. Recently Rick has