Accounting Chapter 23

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Testing CONCEPTS :

1, Variance Analysis includes 3 Levels

2, Direct Material Variance, Labor Variance , Manufacturing Overhead Variance

3, Flexible Budget Variance

Why we Mangers use Budgets? Why I need to make Budgeting?

- Plan and control actions of both Revenue and Expenses

- To make Strategic and Operational plans

- To Compare Actual with budgeted and take correct actions

What are the steps for Budget by Managers?

As there are 3 types of budgets 1, Operating 2, Capital Expenditure 3, Financial

Manager focus Variance Analysis which includes 3 LEVELS of Budget Variance

Define Variance Analysis?

Comparison and Difference between budgeted and actual results

Mangers identify Variance and focus to correct the difference.

What is FIRST LEVEL VARIANCE - Static Budget Variance

- Difference between actual and budget(static)

FAVORABLE ( F )

- Actual Revenue > Budgeted Revenue

- Actual Expense < Budgeted Expense

UNFAVORABLE ( U )

- Actual Revenue < Budgeted Revenue

- Actual Expense > Budgeted Expense

After Identifying Whether Operating Income is Favorable or Unfavor, it is difficult to analyze in First Level variance due to which cost?

Whether variance from Materials, Labor, MOH

Next, SECOND LEVEL VARIANCE

Here, We divide First Level Variance in TWO

F

GROUP PROJECT 4

Efficiency based on usage of materials and labor

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1, Direct Labor Variance

Direct Labor Input Price Variance

= (AP – SP) x AQ

=