Now, as we're looking at this, one of the things that I want us to realize is basically
where these numbers are coming from and how we're coming up with the items that we're
putting where.
So when we compare these, again, there's the one, the two, the three and then the four.
So let me clean this up, and we're gonna throw some numbers in here.
And we're gonna throw some numbers in here so you can start to kind of slowly understand
where they come from.
Alright, in throwing numbers in here, let's start with actual costs.
Our actual is, here's our fixed, and the actual rent was 390.
And here's our variable, and the variable was 1.01 at 97,000 hours.
And this is actual.
Where did I get it?
Under the actual, fixed rent 390, variable electricity 1.01 at 97,000.
So that's fine.
Now flexible budget, flexible budget.
Let's look at our flexible budget equation, and I'll do that, let's come over here.
So our flexible budget equation is what?
Equals fixed plus variable times X.
Now if you're within the flexible budget equation, what is it?
Fixed or fixed, variable or fixed, but it's the X that's gonna change.
The X could either be actual at actual, or standard allowed for actual.
Hmmm.
So as we go through this, it's gonna be your fixed based on your budget and your variable
based on your budget, and then it's either gonna be actual at actual or standard allowed
for actual.
Now when we look at this, what is actual at actual?
Ninety-seven.
What is standard allowed for actual?
Ninety-six.
Oh.
So as I set up the flexble budget equation, let's look at our budgeted numbers.
Remember our budgeted numbers?
Let's see, what was our budgeted costs in the notes?
It said fixed rent was 400,000, which was 400,000, and variable was 100,000, which was
a dollar at a hundred.
So when we set up our budget, we used these budgets.
We said we have 100,000 hours, and we said rent is gonna be $400,000 dollars, which at
100,000 is what?
Four dollars, and electricity is gonna be a dollar at 100, which is 100,000, so our
budget was $500,000.
So, when we set up our flexible budget equation, $400,000, which is the same as a dollar at...
I'm sorry, which is $4 dollars at 100,000 direct labor hours, plus the variable is $1
an hour, and we also thought it was gonna be $100,000.
Remember, that was budget.
But in our formula, we're gonna be using this plus this because within the flexible budget,
fixed or fixed, variable or fixed, what's gonna change is just the X.
So it's gonna be the fixed, which is $400,000 rent, plus $1 dollar, which was our budget,
at, and what is our X gonna be?
Well, for the budget it was 100, but if it's gonna be actual at actual, it's gonna be 97,000.
If it's gonna be standard allowed for actual, it's gonna be 96,000.
So let's take this over to my chart.
So within the fixed, this is still 400, this is still 400, because fixed are fixed.
The variable is gonna be a dollar, a dollar, but what changes is, since this is closer
to actual, it's gonna be actual, 97,000.
Let's do it this way.
This one over here is closer to applied.
We would have applied, what?
Standard allowed based on actual.
We would have applied 96,000.
So you can already start to see these numbers are different, these two are the same.
These two are different, these two are different.
Now what would have gotten applied?
What would have gotten applied is our predetermined overhead rate.
And we would have said, how much is our fixed overhead rate?
It's $400,000, we figure we're gonna need $100,000, that's gonna be what?
Four dollars, times, what got applied?
96,000.
This is gonna be what?
A dollar, at what?
96,000.
So as we go across, you will see here that we've got actual, 'cause this is given.
We've got your flexible budget.
Flexible budget is fixed plus variable times, and your X changes.
Your fixed was 400, your variable was a dollar.
Your X, if it's close to actual, it's gonna be actual, 97.
If it's close to standard, it's gonna be applied, 96.
And then what would have gotten applied is you would have taken your predetermined overhead
rate of $4 dollars an hour, times your standard allowed for actual, a dollar an hour, times
standard allowed for actual.
Now as you continue through this, what you're gonna notice is the difference here, let's
do that again, is what?
Remember I said four gives you what?
Three differences, one, two, three.
This is S-E-V, spending, efficiency, volume.
The spending variance is both fixed and variable 'cause these are both different.
This one is what?
You actually spent 390, that's boom, favorable.
So as we go this way, if this is bigger, it's good.
If this is smaller, that's bad.
So as we go this way, this would be what?
A favorable $10,000 dollar variance.
This one's gonna be, this is gonna be unfavorable 'cause this is bigger than this.
So as you look here, this is unfavorable by a penny times 97,000.
Here notice these two are the same.
That's why this one's both fixed and variable.
This one is variable only because notice, these are different, that's the same, why?
Because within the flexible budget, fixed is fixed.
Then as you come over here to the volume variance, notice these two are the same.
The volume variance is all fixed.
What does it say?
It says, we budgeted $400,000, which was what?
Four at $100,000, that was our budget.
But guess what?
We only applied 90...
What was it?
48,000 instead of 50,000 at 2.
So this was 48 at 2, this was 50 at 2, so what happened is we produced less, which means
our overhead, our fixed cost, didn't get allocated.
So what basically happened here is they're saying is that our fixed overhead did not
get applied.
It didn't get applied.
Because, again, we should have used 100,000 hours in the factory.
We only applied 96.
We were under applied by 4 at 4, $16,000 bucks.
So you can see how this is both, this is variable, this is fixed.
Then if you go to the budget variance, this is gonna stay the same, called volume or non-controllable
'cause that one's hard to control.
This is gonna go from here to here.
Notice these two are different, these two are different, so they like to ask about the
budget variance.
It's still both fixed and variable.
Then at the very end, your net variance is from here all the way to here.
Notice these are different, these are different.
That's gonna be both.
So at the very beginning when we said we applied $300 dollars, but we actually spent $500,
we were under applied by $200, this is the purpose of breaking it up to say the total
here was $200 under applied, what happened?
That's where you're breaking it up.
So as you look through that, I know that it's tricky.
I understand that it's tricky, but that's why we have to spend some time working through
it because it does get tricky as far as understanding the concepts.
That's how you have to work through it.