Unformatted text preview: ine for literature
that wasn’t actually completed until March. If so, at least it appears that the costs on completion
were $6,401, a bit less than the $7,000 planned. Among the larger single variances for an expense item in a month shown in the illustration was the
positive $7,000 variance for the new literature expenses in February. Is this good news or bad news?
Every variance should stimulate questions.
• Why did one project cost more or less than planned? • Were objectives met? • Is a positive variance a cost saving or a failure to implement? • Is a negative variance a change in plans, a management failure, or an unrealistic budget? A variance table can provide management with signiﬁcant information. Without this data, some of
these important questions might go unasked. More on Variance
Variance analysis on sales can be very complex. There can be signiﬁcant differences between
higher or lower sales because of different unit volumes, or because of different average prices. In
the sales variance example in this chapter, the units variance shows that the sales of systems were
disappointing. In the expenses variance, however, we can see that advertising and mailing costs were
below plan. Could there be a correlation between the saved expenses in mailing, and the lower-thanplanned sales? Yes, of course there could. 20.8 HURDLE: THE BOOK ON BUSINESS PLANNING The mailing cost was much less than planned, but as a result the planned sales never came. The
positive expense variance is thus not good for the company. Sales and Marketing expenses were also
above plan in March, causing another negative variance.
The Sales Forecast Variance (see page 20.3) in Systems comparison between units variance and sales
variance yields no surprises. The lower-than-expected unit sales also had lower-than-expected sales
values. Compare that to Service, in which lower units yielded higher sales (indicating much higher
prices than planned). Is this an indication of a new proﬁt opportunity, or...
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