[redox1100]

Does price (rate) variance = flexible budget variance?

My question derives from this MCQ:

In analyzing company operations, the controller of the Jason corporation found a $250,000 favorable flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by:

A. The total flexible budget variance

B. The total sales variance

C. Changes in unit selling prices -> Correct

D. Changes in the number of units sold

I initially picked “A” but my review materials explain that a flexible budget variance deals with costs, not revenues.

So can i fairly assume that Price (rate) variance = flexible budget variance (I.E ACTUAL EXPENSE VS FLEXIBLE EXPENSE) but since this instance deals with a difference in ACTUAL REVENUE AND FLEXIBLE REVENUE it cannot be called a flexible budget variance?

The help would be greatly appreciated.

Enjoy your weekend!

[Anonymous]

In the question it is specifically asking for the “Flexible Budget Revenue Variance” so that would be explained by the difference in unit selling prices. There are multiple “Flexible Budget Variances” that could be computed by using actual output compared to per unit budgeted amounts. So to answer the question, no Price Variance is not the same as Flexible Budget Variance.

To help explain why the other answers are incorrect, D: Volume Variance would explain a change in units sold. (Actual- Budgeted) x Standard Cost

Your study materials are accurate, as the flexible budget typically deals with costing variances but it can also be used to determine a sales price variance. Just use the same method you would for computing a DM price variance (Standard-Actual) x Actual Sold. Same with usage (Standard-Actual) x Standard Cost.

[redox1100]

bcjasper09:

Thank you for your timely and thoughtful response. After re-reading my post, I realize my thoughts are unorganized and I need to be more precise. This is what I have found:

1. DM/DL price variance = Actual Quantity (hours) x (Actual price (rate) – Standard price (rate)) (i.e. (Actual results – Budgeted results)

2. Flexible budget variance = Actual costs – Budgeted costs

Thus, from my understanding DM/DL price variance seems to be a type of flexible budget variance.

If these definitions are incorrect can you please revise them?

Thanks in advance

[Anonymous]

What do you use for your study materials? Becker has a really good way of remembering the variance analysis from a nmumonic. I had trouble remembering them but I know the concepts behind them and this helped me to solidify that:

P: DM Price

U: DM Usage (efficiency, volume)

R: DL Rate (also price)

E: DL Efficiency (Also usage, volume)

To remember what to multiply by you would use the phrase “Dads Dads” Where D- Difference A- Actual S- Standard. Your difference is always, ALWAYS going to be Standard- Actual. So if you have a negative number after computing the formula… its an unfavorable and vice versa.

P: Difference x Actual

U: Difference x Standard

R: Difference x Actual

E: Difference x Standard

I posted this in another forum but if you read through it it really does work. Just remember PURE “DADS DADS” and you'll never forget whether to use actual or standard and your difference is always Standard- Actual so that's easy enough to remember.

[Anonymous]

As for flexible budget variance, there are many really. Each question I've come across will specify what variance they are looking for whether it be operating income, contribution margin, sales price, sales quantity. All they are signifying by saying flexible budget variance is essentially what was the difference between actual and budgeted amounts based on our actual output. So there is no “flexible budget variance” that I know of a formula for. It depends on what variance they are looking for.

That's probably clear as mud but if I come across some examples in some MCQ's I'll be sure to post them.

[redox1100]

bcjasper09:

I think I get it but just to bring clarity to this situation can you give your definition of flexible budget variance so I can compare it to my notes.

Thanks in advance.

P.S 99 on Aud? God damn son haha

[redox1100]

ah we posted at the same time … let me read

[redox1100]

ok man thanks again

[Author]

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