Cost Acct

Discuss the advantages of using a flexible budget versus a static budget. Explain the variances that make up the flexible budget variance. What information do they provide to manager?

As a Budget Analysis, I use variance reports almost every day.  Variance reports compare actual costs (either monthly or yearly) to budgeted (expected) costs for that same time period.  My company’s variance reports are presented by dollar amount as well percentages. The percentages are often helpful in providing a clearer picture than the dollar amount alone.  Variance reports are used monthly to keep track of whether a company is over or under budget. Variance reports vary in the amount of detail they provide to readers. Depending on the need, variances can offer very little detail by providing the amount an entire company is over or under budget, delve a bit deeper and offer overall variances for each and every department, or they can go into great detail by analyzing the actual vs. budget for every single individual subaccount in all departments. By doing this, large variances can be caught quickly and research can be conducted to determine if there are issues that need to be addressed or a looming crisis that must be averted. When preparing a static budget, a fixed output level is used at the beginning of the year to determine the budget amounts for all accounts. The fixed values in static budgets are not just educated guesses; instead, they are calculated using actuarial science, which incorporates prior company financial information as well as relevant external information and future trends to determine the budget. When a static budget is used, the final variance reports that are completed at the end of the fiscal year do not make adjustments to account for variances in output. Because of this failure to adjust for the difference in output levels, the values specified in static budgets often will vary greatly from the actuals at the end of the budget period. This often...