Flexible Budget Case Study

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FLEXIBLE BUDGET
A flexible budget, which is also known as variable budget as the name typifies flexes for alteration in the volume of operations and it is calculated using the actual activity level for a particular period (not the budgeted sales) multiplied by the standard cost per unit. It uses the incomes and expenses generated in the recent production as a baseline and measures how the income and expenditures will vary based on the changes in the output. In addition, it is established after a period to foretell both the successful and the unsuccessful areas for the forthcoming accounting period. (My Accounting Course, n.d.) To accomplish this in the real world, the managers carefully identifies the fixed and the variable cost and then compares
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Materials price variance and materials quantity variance for direct material variance analysis and labor rate variance and labor efficiency variance for the direct labor variance analysis The total variance for direct materials is found by contrasting actual direct material cost to standard direct material cost, while the overall variance for direct labor variances analysis is established by comparing actual direct labor cost to standard direct labor cost.
Standard costs are utilized in generating the flexible budget for both direct material and direct labor. The variance in materials costs is divided into a materials price variance and a materials usage variance, while the variance between the actual direct labor costs and the standard direct labor costs is divided into a labor rate variance and a labor efficiency variance.
If the actual cost of both variance analysis is less than the expected cost that means the variance is favorable and vice versa. The direct materials variance analysis answers the question of whether the organization spends more or less amount on material and direct material in production than expected. On the other hand, the labor variance analysis answers the question of whether the organization spends more or less amount on direct labor and direct labour hours in production than
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