Quiz 9: Flexible Budgets and Performance Analysis


Follow the format of the flexible budget given in the problem, but use 190 diving hours for each calculation: Flexible Budget img

Static planning budget: Static planning budget is a planning budget, which is prepared at the beginning of the period. This planning budget is based on one projected level of activity.

1)Remake the planning budget and flexible budget so they are side by side. Calculate the variances (differences between the two) and determine if they are favorable (F) or unfavorable (U). If Revenues are higher than planned, it is a favorable outcome. Likewise, if revenues are lower than planned it is an unfavorable out come. The opposite is true with regards to expenses: Activity Variance img 2)Management should really only concern itself with the fact that the level of activity was above what had been planned for the month since it led to increased profits of $1,100. However, since the favorable variance for revenue and the unfavorable variances for expenses are caused by the increased level of activity, management need not give individual items much attention.