Class activity wk 5 91 What is a static planning budget?

A static budget is basically the blue print of what the management team wants or thinks will happen. 92 What is a flexible budget and how does it differ from a static planning budget? A flexible budget is taking what actually happened and plugging those numbers in to see what the results should have been. This is very useful in a real life application to determine how efficient the process is running. The static budget will not change with reference to what is actually happening so it does not make a good reference tool, only a guide. 93 What are some of the possible reasons that actual results may differ from what had been budgeted at the beginning of a period? We live in an ever changing world so things rarely stay the same! Market needs are very fluid and can change the price of materials, over head(electricity, gas, taxes), foreign agreements are subject to be modified due to weather or national stability, etc... 94 Why is it difficult to interpret a difference between how much expense was budgeted and how much was actually spent? By just looking at one piece of the equation you are missing a lot. The numbers tell the story, but one must look at all the numbers to see the what and why is going on. 95 What is an activity variance and what does it mean? Activity variance is the difference of what was planned and actually occurred. For some reason the amount of activity planned was above or below the actual activity that occurred and the numbers must be adjusted to correctly compare the two. 101 What is a quantity standard? What is a price standard? Quantity standards are a specification that show how much of a certain material is needed to create the product. Price standards are the input price per unit. 102 Distinguish between ideal and practical standards. Ideal standards are the imaginary perfect world operating conditions in which there are no break downs, and employees work at 100% all the time. Practical standards take into account the normal fluctuations of a day/month such as break downs and the Monday hang over to create a goal that is attainable only by pushing through the issues of the day. 103 What is meant by the term management by exception? This is when the input numbers (quantity/price) are not what is expected which leads the managers to investigate and rectify the situation. 104 Why are separate price and quantity variances computed? The causes of price and quantity are not always linked so they are broken into two separate categories. 105 Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency variance? The purchasing manager is usually responsible for the material price variance, and can be responsible for the quantity variance if the poor material is purchased. It could also be the fault of the workers or a machine break down issue. Usually the manager in charge of production is held responsible for the labor efficiency variance.