What are some of the possible reasons that actual results may differ from what had been budgeted as the beginning of a period? the differences are usually due to a change in the level of activity, changes in prices, and changes in how effectively resources are managed.
The only difference between a flexible budget based on a single cost driver and one based on two cost drivers is the cost formulas.
Activity variances are the differences between the static/planning budget and the flexible budget and are caused by the difference between planned and actual activity levels.
These differences are labeled activity variances. The differences between the flexible budget and the actual performance are due to differences in selling price per unit for revenue and spending per unit for expenses.
A static budget is a kind of budget in which the income and expenditure of the concerned body are pre-determined for the upcoming period. ... A flexible budget on the other hand does not pre-determine the money flow of a period. It is free to change according to the needs of the hour and changes in its activity.
An activity variance is the difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. An activity variance is due solely to the difference in the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget.
When a static planning budget is compared to actual results at a different activity level: -increases or decreases in net income are not adequately explained. -changes in costs are expected due to changes in activity.
A variance is usually considered favorable if it improves net income and unfavorable if it decreases income. Therefore, when actual revenues exceed budgeted amounts, the resulting variance is favorable. When actual revenues fall short of budgeted amounts, the variance is unfavorable.Mar 26, 2016