Module+8000+III+Explanation+and+Examples

//Planning and Control //

 * ==Budgeting is a tool that allows a company to set a course of action in order to maximize their performance. ==

**__Flexible Budgets __**
==A flexible budget accounts for changes in production, activities, and volumes of work. This budgeting format allows companies to identify perceived changes in production. The flexible budget has the pulse of how the company is actually doing by measuring changes over time. @http://blog.accountingcoach.com/flexible-budget[i] ==

//Examples where flexible budgeting is useful //

 * 1) ==Product integration: your company has developed a new process. You have identified that you can produce but you need to figure out at what levels. ==
 * 2) ==Industries that accommodate seasonal products, i.e. candy manufacturers (Christmas, Easter, & Halloween), or outdoor equipment manufacturers. ==

**__Static Budgets __**
==A static budget looks at all lines in a division or business and uses planned outputs—without regard for change. (Payroll, taxes, other maintenance are included in this budget). @http://blog.accountingcoach.com/what-is-a-static-budget[ii] ==

The relationship of various types of budgets in planning is depicted in the exhibit shown below
==(Martin, James R. “Chapter 9 The Master Budget or Financial Plan”. __Maaw.info__. July 4, 2011 <@http://maaw.info/Chapter9.htm>)[iii]. ==

**(a) ****Fixed costs **
==<span style="font-family: 'Times New Roman','serif';">(b) **<span style="font-family: 'Times New Roman','serif';">Variable rate of input per value of change (x) value **<span style="font-family: 'Times New Roman','serif';">. ==

==<span style="color: #000000; font-family: 'Times New Roman','serif';"> Read more: @http://www.answers.com/topic/cost-volume-formula <span style="color: #000000; font-family: 'Times New Roman','serif'; font-size: 14.6667px;">[iv] ==

==<span style="font-family: 'Times New Roman','serif';">As learned in economics, a decrease in the price of a competitor’s product can increase the consumption in the quantity of a substitute**.**(@http://en.wikipedia.org/wiki/Substitute_good)<span style="font-family: 'Times New Roman','serif'; font-size: 14.6667px;">[v] ==

<span style="font-family: 'Times New Roman','serif';">A flexible budget can only be determined after a period has passed.

 * 1) ==<span style="font-family: 'Times New Roman','serif';">First determine the known costs per unit and the budgeted sales price for units produced. ==
 * 2) ==<span style="font-family: 'Times New Roman','serif';">Determine the budgeted amounts of fixed costs ==
 * 3) ==<span style="font-family: 'Times New Roman','serif';">Calculate how much was actually produced ==
 * 4) ==<span style="font-family: 'Times New Roman','serif';">Complete the budget using steps 1 & 2 and accounting for the actual volume produced in step 3. ==

<span style="font-family: 'Times New Roman','serif';">1,000,000 units, 1,500,000 units, and 2,000,000 units

 * 1) ==<span style="font-family: 'Times New Roman','serif';">Prepare a flexible budget for all levels of production ==
 * 2) ==<span style="font-family: 'Times New Roman','serif';">What is the per-unit cost for each of the production levels in step 1? ==


 * 1) ==<span style="font-family: 'Times New Roman','serif';">Prepare a performance report for actual costs for the first quarter, compared to the flexible budget amounts. ==
 * 2) ==<span style="font-family: 'Times New Roman','serif';">What is the actual per-unit cost? What is the flexible budgeted per-unit product cost? ==

**<span style="font-family: 'Times New Roman','serif';">Variances: **

 * 1) ==**<span style="font-family: 'Times New Roman','serif';">(F) Favorable: beats expectation based on results **==
 * 2) ==**<span style="font-family: 'Times New Roman','serif';">(U) Unfavorable: More than expected based on results **==


 * ==<span style="font-family: 'Times New Roman','serif';">Accounts for increased or decreased activity changes or the “//what if//” equation. ==
 * ==<span style="font-family: 'Times New Roman','serif';">Evaluates overall production performance for management. ==

==<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">[ii] <span style="font-family: 'Times New Roman','serif';">@http://blog.accountingcoach.com/what-is-a-static-budget ==

==<span style="font-family: 'Calibri','sans-serif'; font-size: 14.6667px;">[iii] <span style="font-family: 'Times New Roman','serif';">(Martin, James R. “Chapter 9 The Master Budget or Financial Plan”. __Maaw.info__. July 4, 2011 <@http://maaw.info/Chapter9.htm>) <span style="font-family: 'Times New Roman','serif'; font-size: 14.6667px;">[iii] <span style="font-family: 'Times New Roman','serif';">. == ==<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">[iv] <span style="color: #003399; font-family: 'Times New Roman','serif'; font-size: 16px;">@http://www.answers.com/topic/cost-volume-formula ==