Q6RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What are the two components of the static budget variance? How are they calculated?

Step-by-Step Solution

Answer

Answer

Static budget variance is calculated by summing up the sales volume and flexible budget variance.

Step 1: Definition of Budgeting

The process under which the business entity estimates the level of activity a business entity wishes to achieve through business operation is known as budgeting. It includes the estimation of revenue and expenses.    

Step 2: Two components of static budget variance

The two components of the static budget variance include:

1. Flexible budget variance: Calculation is as follows

   Particular	Amount $
   Actual results	xxx
   Less: Flexible budget	(xxx)
   Flexible budget variance	xxx

2. 1. Sales volume variance: Calculation is as follows

   2. Particular	Amount $
      Actual results	xxx
      Less: Flexible budget	(xxx)
      Flexible budget variance	xxx