Variable Cost Variances Notes.docx - Variable Cost...

This preview shows page 1 - 2 out of 8 pages.

Variable Cost Variances Variance Analysis Foundation: The control function compares actual results to the planned or budgeted results. When a difference occurs, it is called a Variance . Variance analysis uses the difference between actual and budgeted performance to: 1. 2. Similar to debits and credits, a variance is presented as a _positive_ amount. The direction of the variance is determined by is effect on _profit_ . A _Favorable_ variance as the effect of increasing profit, while an _unfavorable_ variance has the effect of decreasing profit. When the activity of the planning or static budget is different from the actual activity, the comparison of the two amounts becomes difficult. The total variance is calculated, but why does the difference exist? Is it because the activity was different, or was there a spending problem? The only way to resolve these questions is to create a _flexible_ _budget_ , which is a budget for the _actual_ activity using the planned or budgeted costs. A planning budget is produced _before_

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture