Analysing budgets Flashcards
(10 cards)
What is variance?
The difference between the actual figures and the budgeted figures.
What is favourable variance?
When income is higher or costs are lower than expected.
What is adverse variance?
When income is lower or costs are higher than expected.
What are external factors that cause variance?
Economic changes (inflation)
Competitor actions
What are internal factors that cause variance?
Poor management decisions (overspending)
Staff performance (absenteeism)
What is variance analysis?
Spotting variances and figuring out why they’ve happened.
Why can small variances be good?
Staff are motivated to analyse the situation themselves.
Why can large variances be bad?
Demotivates staff as they feel the task is impossible.
How can businesses react to adverse variances?
Streamline production to be more efficient
Additional market research
How can businesses react to favourable variances?
By setting more ambitious targets next time
If one department is doing particularly well, other departments could copy them
