📚 Seth MB


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Interpretation of Variances

Last updated Mar 13, 2023 Edit

# Examples of variances

# Adverse

# Favourable

# Interpreting Variances

# Worksheet

# Q1

A budget is a financial plan for the future concerning the revenues and costs of a business.

Budgets for sales/revenues and expenditure are prepared in advance and then compared with the actual performance to establish any variances.

Managers are responsible for controllable costs within their budgets and are required to take remedial action if favourable or adverse variances arise, and they are considered excessive.

There are many management uses for budgets. For example, budgets are used to:

# Q2

  1. Variance Analysis
  2. Sales Revenue Budget
  3. Financial Forecast
  4. Adverse Variances

# Q3

  1. False
  2. True
  3. True

# Q4

Sales discrepancy: £50,000 Expenditure discrepancy: -£11,000 Profit budget: £255,000 Actual profit: £294,000 Profit discrepancy: -£39,000£255,000 Actual profit: £294,000 Profit discrepancy: £39,000

# Q5

Why might a sales revenue budget be higher than forecast?

A sales revenue budget might be higher than expected if the demand in the market is very changeable. If the market is for a product such as masks, then planners before the covid pandemic would not have been able to predict the sharp increase.

A sales budget is also based on extrapolated data, so changes in the real world may differ greatly from assumptions made by a budget planner.