Why is the identification of favorable and unfavorable variances so important to a company?
Why is the identification of favorable and unfavorable variances so important to a company? How can the identification of the variances help management control costs? Please explain.
As you are considering the flexible budgeting topic of the week, it is important for you to look at this analysis as a significant contribution to the management of the company. Knowing what the bottom line profit or loss is important. But what is more important is to understand how your actual results varied in terms of units sold versus how the actual cost of each unit differed from the budget.
Please do watch the video available in this week’s resources – you can turn the sound off and read the script on the right side if you need to. The lecturer has an excellent example that will help you.
Do you have an example that you can share? Sometimes that’s the best way to answer the question.)
Two people on opposite sides of a desk working on financial documents.In this Unit, we discuss management control and performance measures. We explain how to prepare flexible budgets and how to compare them to actual results for the purposes of computing revenue and spending variances. We also describe how standards are used to isolate the effects of various factors on actual results. In particular, we compute material, labor, and overhead variances.
Prepare a planning and a flexible budget.
Prepare a report showing .
Prepare a flexible budget with more than one cost driver.
Compute the direct materials quantity and price variances and explain their significance.
Compute the direct labor efficiency and rate variances and explain their significance.
Compute the variable manufacturing overhead efficiency and rate variances and explain their significance.
(Appendix 8A) Compute and interpret the fixed overhead volume and budget variances.