Flexible Budgets and Performance Analysis

9-1 The planning reckon is prepargond for the planned aim of activity. It is nonoperational because it is not adjusted even if the train of activity afterward changes.9-2 A ductile work out can be adjusted to forge any take of activityincluding the unfeigned level of activity. By contrast, a static planning cypher is prepared for a single level of activity and is not subsequently adjusted. 9-3Actual results can differ from the figure for many reasons. Very broadly speaking, the exits are usually payable to a change in the level of activity, changes in prices, and changes in how effectively resources are managed.9-4 As noted in 9-3 above, a difference between the cipher and actual results can be due to many factors. Most importantly, the level of activity can have a very big uphold on costs. From a managers perspective, a variableness that is due to a change in activity is very different from a form that is due to changes in prices and changes in how effectively reso urces are managed. A edition of the first kind requires very different actions from a naval division of the second kind. Consequently, these two kinds of divergencys should be clearly separated from each other. When the cipher is directly compared to the actual results, these two kinds of variances are lumped together.9-5 An activity variance is the difference between a taxation enhancement or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference in the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget. Caution should be exercised in interpreting an activity variance. The favorable and unfavorable labels are perhaps jerry-built for activity variances that involve costs. A favorable activity variance for a cost occurs because the cost has some variable component and the actual level of activity is less than the planned level of activity. An unfavorable activity variance for a cost occurs because the cost has some variable component and the actual level of activity is greater than the planned level of activity.9-6 A revenue variance is the difference between how much the revenue should have been, attached the actual level of activity, and the actual revenue for theperiod. A revenue variance is easy to interpret. A favorable revenue variance occurs because the revenue is greater than expected for the actual level of activity. An unfavorable revenue variance occurs because the revenue is less than expected for the actual level of activity.9-7 A outlay variance is the difference between how much a cost should have been, given over the actual level of activity, and the actual amount of the cost. Like the revenue variance, the interpreting of a spending variance is straight-forward. A favorable spending variance occurs because the cost is lower than expected for the actual level of activity. An unfavorable spending va riance occurs because the cost is higher than expected for the actual level of activity.9-8 In a flexible budget capital punishment report, the static planning budget is not directly compared to actual results. The flexible budget is interposed between the static planning budget and actual results. The differences between the static planning budget and the flexible budget are activity variances. The differences between the flexible budget and the actual results are the revenue and spending variances. The flexible budget performance report cleanly separates the