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Financial & Managerial Accounting
Found in: Page 967
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

What are the relations among standard costs, flexible budgets, variance analysis, and management by exception?

Standard costs, flexible budgets, variance analysis, and management by exceptions are the tools for effective operations of a business concern.

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Step by Step Solution

Step 1: Meaning of Budgetary Control

Budgetary control is an approach used by the managerial accounting branch to focus on the profit maximization of the business entity by planning and coordinating various activities and associated functions.

Step 2: Relationship among standard costs, flexible budgets, variance analysis, and management by exception

  • Standard costs, flexible budgets, variance analysis, and management by exception are the techniques and tools used by the business entities for controlling and analysis purposes.

  • Variance analysis is performed to determine the differences in different outputs and apply controlling and corrective measures.

  • Flexible budgets are prepared to adjust the changes in the activity levels of production.

  • In addition, the material items containing greater variances are reported to the management and are termed as management by exception.

  • Standards costs are the estimated cost incurred by a business concern to produce a specific product or service during a particular period.

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