Flexible Budgets and Variances

answer the following questions, and read others answers give responds.

Q1: What is the operating budget and what are its components listing first the budget relied on by most other supporting budgets. Two sentences maximum.

Q2: Contrast the calculation differences between the flexible-budget and sales-volume variances. Two sentences maximum.

Q3: How do managers use variances? Two sentences maximum.

• Formatting: Format your discussions in the following ways:

• Times New Roman font, size 12
• Include your name
• Include references to credit any text, video, or other materials that you used as sources (including your textbook).

• Content: Your discussions will be graded based on the discussion rubric as well as the style of your writing.
• Mechanics: You are expected to use proper mechanics, and you will lose points for grammatical, spelling, or punctuation errors.

student 1 :

Q.1- The budgeted income statement and its supporting budget schedules, which together are called the operating budget. Preparing the revenues budget is often the starting point of the operating budget because the forecasted level of unit sales or revenues has a major impact on the production capacity and the inventory levels planned.

Q.2- The sales-volume variance is the difference between a flexible-budget amount and the corresponding static-budget amount. The flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount.

Q.3- A variance is the difference between the actual results and the expected performance otherwise known as budgeted performance, and managers often use variance analysis when evaluating the performance of their employees or business units. The effectiveness, the degree to which a predetermined objective or target is met, and the efficiency, the relative amount of inputs used to achieve a given output level, are commonly evaluated.

Reference: Datar, S.,and M. Rajan, 2018. Horngren’s Cost Accounting, A Managerial Emphasis (16th Ed).

student 2:

Q1: What is the operating budget and what are its components listing first the budget relied on by most other supporting budgets. Two sentences maximum.

An operating budget is an income statement that shows what has been budgeted for operations. The components of an operating budget are the revenues budget (which other supporting budgets rely on), followed by ending inventory budget, production budget, direct material costs budget, direct manufacturing labor costs budget, manufacturing overhead costs budget, cost of goods sold budget, R&D/Design Costs Budget, marketing costs budget, distribution costs budget, and budgeted income statement (Datar and Rajan, 2018).

Q2: Contrast the calculation differences between the flexible-budget and sales-volume variances. Two sentences maximum.

The sales-volume variance is calculated by subtracting the flexible-budget amount from the static-budget amount whereas the flexible-budget variance is calculated by subtracting the actual result from the flexible-budget amount. Between the two, the flexible-budget is a better measure of cost performance and sales price because it compares actual costs to budgeted costs and budgeted revenues to actual revenues (Datar and Rajan, 2018).

Q3: How do managers use variances? Two sentences maximum.

Variances are an important tool for managers because they allow them to see where performance has slipped and make corrections. For example, when I used to review my company’s corporate office vendor invoices, any area that had a variance greater than 5% required explanation so that we could determine if it was a one-time expense, if this was something we needed to start factoring into our monthly budget, or if there was a problem or inefficiency that needed to be resolved (Datar and Rajan, 2018).

References: Datar, S. M. and Rajan, M. V. (2018). Horngren’s Cost Accounting: A Managerial Emphasis, 16th Edition.