CHAPTER 9 FLEXIBLE BUDGETS AND PERFORMANCE ANALYSIS

CHAPTER 9 FLEXIBLE BUDGETS AND PERFORMANCE ANALYSIS

1. Management by exception A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further.

2. Planning budget A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

3. An unchanged planning budget is known as a static planning budget

4. Flexible budget A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

   • If adjustments for the level of activity are not made it is very difficult to interpret discrepancies budgeted and actual costs.

5. Revenue variance The difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period

6. Spending variance The difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

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