Question

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1. What is the operating budget and what are its components listing first the budget relied on by most other supporting budgets.

The operating budget is an income statement that has been budgeted, as well as the schedules for the budgeted income. The revenue budget is the first budget and is the one the remaining budgets rely on.

2. Contrast the calculation differences between the flexible-budget and sales-volume variances.

Flexible-budget variance is the distinction between the real results and the correlating flexible-budget amount, while the sales-volume variance is the change between the flexible-budget amount and the correlating static-budget amount. The way to find the flexible-budget amount is to subtract the flexible-budget amount from the actual result, and the way to find the sales-volume variance is to subtract the static budget amount from the flexible-budget amount.

3. How do managers use variances?

Managers have begun to pay more attention to the areas of their business that have variances in their budgets in order to resolve the issues and negate the variances. By inspecting the variance, the manager is able to cut costs related to parts, production, and employee time wages.

Answer 1

1. What is the operating budget and what are its components listing first the budget relied on by most other supporting budgets.

The operating budget is an income statement that has been budgeted, as well as the schedules for the budgeted income. The revenue budget is the first budget and is the one the remaining budgets rely on.

Response 1 : Correct, the operating budget describes the income-generating activities of the firm, such as sales, production, and finished goods inventory. The ultimate conclusion of the operating budget is the pro forma income statement and the operating profit margin.

The business sets up goals to be achieved for a particular period and during the year, monthly Varaince analysis is done against the budgets to check if we are still in the position to achieve our goals. The supporting budgets use the Volume of Operations to determine the value of costs expected to be incurred like Raw material cost, Freight costs , basically all the varaible costs. Fixed costs like salary , rent are also budgeted basis the contracts.

2. Contrast the calculation differences between the flexible-budget and sales-volume variances.

Flexible-budget variance is the distinction between the real results and the correlating flexible-budget amount, while the sales-volume variance is the change between the flexible-budget amount and the correlating static-budget amount. The way to find the flexible-budget amount is to subtract the flexible-budget amount from the actual result, and the way to find the sales-volume variance is to subtract the static budget amount from the flexible-budget amount.

Response :

A flexible budget is a budget that shows differing levels of revenue and expense, based on the amount of sales activity that actually occurs. If actual revenues are inserted into a flexible budget model, this means that any variance will arise between budgeted and actual expenses, not revenues.A flexible budget allows a business to see more variances than a static budget.Variance information, such as the difference between estimated and actual sales and estimated and actual operating costs, helps the business improve efficiency and identify problem areas.

The sales volume variance is the difference between the actual and expected number of units sold, multiplied by the budgeted price per unit. Sales Volume varaince is calcultaed to understand the performance of the business versus the expectation, but we negate the price effect and understand the impact of only volumes

3. How do managers use variances?

Managers have begun to pay more attention to the areas of their business that have variances in their budgets in order to resolve the issues and negate the variances. By inspecting the variance, the manager is able to cut costs related to parts, production, and employee time wages

• Variance analysis is the measurement of variances, location of their root causes, measuring their effect and their disposition.
• Variance analysis helps to assign the responsibility of the business to various persons or departments.
• For expenses , the primary objective of variance analysis is to exercise cost control and cost reduction.
• It helps the company for achieving its business target and ensure efficient utilization of the resource of the company.