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I just finished doing the Budgeting questions from my kit.
2 terms that were NOT mentioned in the chapter:
Expenditure Variance
volume variancecan u please define these for me?
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here is the question:
Budget flexed Actualsales (units) 120,000 100,000 100,000
$000
sales rev 1200 1000 995
var costs 360 300 280
var OH poh 60 50 56
fixed oh 300 300 290
fixed admin 360 360 364
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profit/(loss) 120 (10) 5the answers are:
expenditure var 15 F
volume var 130 Apls explain how he got the answers.
thanks
They were not mentioned because they are not really part of budgeting – it is variance analysis which is in a later chapter.
In addition, what they have done is not strictly correct anyway!
In this question, the volume variance compares the flexed profit with the original budget profit. Since the flexed is (10) as against the original 120, it is 130 down on budget. (Adverse means ‘bad’ or less profit)
The expenditure variance compares the actual profit with the flexed profit. So 5 as against (10) which is an increase of 15 (favourable means ‘good’ or more profit).
I am guessing that you found this in the Kaplan book. It is very poor of them – both to put it in the budgeting section (when it is variances) and also to have them at all because (as you will see in the variance chapter) they are not strictly correct anyway!
yes! … i have done the variance chapter and i was totally thrown offf guard thinking wtf!
i then saw ur lectures on budgets again and thought may have missed something….thats when i decided to ask u.
yes.. kaplan not only has tremendous amounts of typos but i have noted “odd” questions prop up from nowhere and questions that r not worded correctly.
am glad u r here to solve/answer ppl’s questions!
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