WK5 DQ2 - It is expected that one might be a few dollars...

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What are variances and why do these occur? When should one investigate budget variances? What factors would you consider when deciding whether to investigate a variance? As a manager, how you would you handle variances? Should managers be punished or rewarded depending on the variances in their departments? Variances are the difference between the amount budgeted and the actual amount. Budget variances in large amounts should be investigated whether the variance is negative or positive. Budget variances can occur for many reasons. An unexpected event which causes an unexpected expense is one of the many reasons for a variance in a budget. If the budget was incorrectly estimated a variance can occur. If a clerk enters an expense to the wrong account a variance could occur. As a manager I would investigate variances that are over or under the budgeted amount by $100 or more dollars.
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Unformatted text preview: It is expected that one might be a few dollars over or under when budgeting. I am not sure a manager should be punished or rewarded. However, that being said a manager should be aware of operating expenses of his or her department. Making large errors in estimating a budget can cause the company to lose money if expenses are not correctly estimated. Also overestimating can have an adverse affect on the company as well as money budgeted in areas that it was not need may have been needed in other areas. Budgets can be difficult for a new business because one just might not know of all the expenses that will occur. A business of many years is a bit easier to budget for as one can compare prior years or periods to see where increases or decreases have occurred. Having historical data to refer to will make the job much easier....
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