budget variances

budget variances - Budget variances and management by...

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Budget variances and management by exception A key word to understand when you are looking at budgets is “variance” A variance arises when there is a difference between actual and budget figures Variances can be either: Positive/favourable (better than expected) or Adverse/unfavourable ( worse than expected) A favourable variance might mean that: Costs were lower than expected in the budget, or Revenue/profits were higher than expected By contrast, an adverse variance might arise because: Costs were higher than expected Revenue/profits were lower than expected Should variances be a matter of concern to management? After all, a budget is just an estimate of what is going to happen rather than reality. The answer is – it depends. The significance of a variance will depend on factors such as: Whether it is positive or negative – adverse variances (negative) should be of more concern Was it foreseen? Was it foreseeable?
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This note was uploaded on 03/18/2012 for the course ACCT 205 taught by Professor Christensen during the Spring '11 term at Boise State.

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budget variances - Budget variances and management by...

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