ManagerialAccountingStudent财务管理经管.pptVIP

Part of the discrepancy between the budgeted net operating income and the actual net operating income is because the actual level of activity is higher than the planned activity. Now that we can prepare flexible budgets, let’s see how we can use them to develop performance reports. We will again use the Larry’s Lawn Service data and begin with activity variances. The activity variances for Larry’s Lawn Service would be computed as shown on this slide. Notice: The level of activity in the flexible budget (550 lawns) is 10% higher than the level of activity in the planning budget (500 lawns). The planning budget shows revenue and cost amounts at the original planned level of activity while the flexible budget shows revenue and cost amounts at the actual level of activity. The differences (variances) between the planning budget for 500 lawns and the flexible budget for 550 lawns are due solely to the activity increase. Revenue in the flexible budget is 10% higher than the planning budget because revenue varies proportionally to changes in the activity level. The higher activity level results in a favorable activity variance for revenue. The variable costs in the flexible budget (gasoline and supplies and equipment maintenance) are 10% higher than the planning budget because variable costs vary proportionally to changes the activity level. The mixed cost (wages and salaries) in the flexible budget is less than 10% higher than the planning budget because the fixed cost component of the mixed cost does not change when the activity level changes. The higher activity level results in unfavorable activity variances for these costs. The fixed costs in the flexible budget are the same as the planning budget because they do not change in response to changes in the activity level within the relevant range. Activity and revenue increase by 10 percent, but net operating income increases by more than 10 percent (33 percent) due to the presence of fixed costs. Learning o