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 answer this question. In that report, the planning budget from the beginning of the period is compared to the flexible budget based on the actual level of activity for the period. The planning budget shows what should have happened at the budgeted level of activity whereas the flexible budget shows what should have happened at the actual level of activity. Therefore, the differences between the planning budget and the flexible budget show what should have happened solely because the actual level of activity differed from what had been expected.