Unformatted text preview: ce Analysis
Many businesses, especially the small, entrepreneurial kind, ignore or forget the other half of the
budgeting. Budgets are too often proposed, discussed, accepted, and forgotten. Variance analysis looks
after-the-fact at what caused a difference between plan vs. actual. Good management looks at what
that difference means to the business.
Variance analysis ranges from simple and straightforward to sophisticated and complex. Some costaccounting systems separate variances into many types and categories. Sometimes a single result can
be broken down into many different variances, both positive and negative. CHAPTER 20: PLANNING FOR IMPLEMENTATION 20.7 The most sophisticated systems separate unit and price factors on materials, hours worked, cost-perhour on direct labor, and ﬁxed and variable overhead variances. Though difﬁcult, this kind of analysis
can be invaluable in a complex business. Look for Speciﬁcs
This presentation of variances shows how important good analysis is. In theory, the positive variances
are good news because they mean spending less than budgeted. The negative variance means
spending more than the budget. Variance Analysis for Sample Company
Continuing our example, the $5,000 positive variance in advertising in January means $5,000 less than
planned was spent, and the $7,000 positive variance for literature in February means $7,000 less than
planned was spent. The negative variance for advertising in February and March, and the negative
variance for literature in March, show that more was spent than was planned for those items.
Evaluating these variances takes thought. Positive variances aren’t always good news. For example:
• The positive variance of $5,000 in advertising means that money wasn’t spent, but it also means
that advertising wasn’t placed. Systems sales are way below expectations for this same period
— could the advertising missed in January be a possible cause? • For literature, the positive $7,000 in February may be evidence of a missed deadl...
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