Matakuliah : <<AKUNTANSI BIAYA II>>
Tahun
: <<2009>>
FLEXIBLE BUDGET
Pertemuan 8 dan 9
LEARNING OBJECTIVE
• Explain flexible budgeting and prepare a flexible
budget.
• Compute and explain the meaning of spending
and idle capacity variances.
• Prepare variance report
Bina Nusantara University
3
Preparing a Flexible Budget
• Before a flexible budget is prepared, a formula is
needed to describe each account within each
department or cost center.
• Each formula indicates the fixed cost and/or variable
cost rate for the account.
• The variable portion of the formula is a rate of cost in
relation to some measure of activity. Such as labor
hours, machine hours, or units of production. The fixed
amount and the variable rate constant in relevant range.
Bina Nusantara University
4
Evaluating Performances
• These variances are used in evaluating performances
of each department or cost center :
• Spending Variance is the difference between actual
cost and the budget allowance ( a budget adjusted to
reflect the actual level of activity).
• If the budget allowance is a reasonable estimate of
what should have been spent for the actual level of
activity experienced, the spending variance can be
viewed as a measure of efficiency.
Bina Nusantara University
5
Evaluating Performances
• Idle capacity variance is the difference between the
budget allowance for actual activity and the amount of
cost changed, at a predetermined rate, to products
manufactured during the period or to user department for
services rendered.
• It is a measure of capacity use because it is driven by
the difference between the activity level used to compute
the predetermined overhead rate and the activity level
actually experienced.
Bina Nusantara University
6
favorable or unfavorable
• a variance is referred to as favorable or unfavorable
depending on whether it has a favorable or unfavorable
effect on income and owner’s equity.
• In either case, over applied overhead decrease the cost
of goods sold in the current period, which in turn
increase income and owner’s equity. Because it has a
positive effect on income and owner’s equity, over
applied overhead is said to be favorable.
Bina Nusantara University
7
favorable or unfavorable
• In contrast, the excess of actual overhead over the
amount applied to production ( under applied overhead )
increases cost of goods sold and decreases income
and owner’s equity. Because it has a negative effect on
income and owner’s equity, under applied overhead is
said to be unfavorable.
• Because spending and idle capacity variance are
parts of over or under applied overhead, they too affect
income.
Bina Nusantara University
8
Usefulness of Flexible Budget
• Historically the flexible budget was used mainly to
control department factory overhead. Now, however,
flexible budget are prepared for marketing,
administrative, and manufacturing cost.
• The flexible budget is also useful in planning, because
it provides cost behavior information that can be used to
evaluate the effects that different activity levels have on
profits and cash flows and to establish the periodic
budget.
Bina Nusantara University
9
Usefulness of Flexible Budget
• Any increase or decrease in business activity affects
the entire enterprise. In some activities or departments,
change will be greater than in others. Certain
departments can increase production without much
additional cost. In others, cost increase or decrease in
proportion to production.
• Flexible budget reflect these realities.
Bina Nusantara University
10
A Variance Report
• A Variance report can be prepared by computing the
budget allowance for actual activity and comparing it to
both actual overhead and applied overhead. To provide a
detailed report to operating management, the spending
variance is computed for each item of overhead by
subtracting the item’s flexible budget amount from the
item’s actual cost.
• The idle capacity variance is computed by subtracting
applied overhead from the total budget allowance.
Bina Nusantara University
11
Example refers to reference
• The total spending variance plus the idle capacity
variance equals the amount of over or under applied
factory overhead for the period, as follows :
• Actual factory overhead cost ………… $ 30,775.75
• Applied factory overhead …………….. $ 32,250.00
• Over applied factory overhead ……… $(1,474.25)
Bina Nusantara University
12
Example refers to reference
• Spending variance ………… $ 475.75 unfavorable
• Idle Capacity variance …….. (1,950.00) favorable
• Over applied factory overhead $ 1,474.25)
• Read more, preparing a variance report on part 4,
chapter 17, page 17-16 till 17-18
Bina Nusantara University
13
Example refers to reference
• In such cases, better cost control and more meaningful
products cost data result when accountants use more
than one overhead rate. Because using multiple rates
within a department is costly, the expected benefit
should be weighed against the cost gathering and
providing the information.
• However, if responsibility reports are to be used for
performance evaluation and cost control.
Bina Nusantara University
14
Example refers to reference
• It is essential that cost be highly correlated with the
activity used in calculating the budget allowance.
Otherwise, the budget allowance will be in many cases
only when multiple activities are used calculate multiple
overhead rates.
Bina Nusantara University
15
CONCLUSION
• Flexible budget gives a lot of information to
management, to help the management in making an
important decisions about the company strategic
planning in future.
• A variance report shows over or under applied factory
overhead.
Bina Nusantara University
16