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Budget Variance Analysis

Imagine that for the second quarter in a row, profits are down at Waterfall division. Division Management budgeted $250,000 in profits for the 2nd quarter but actual results were only $197,000 in profits. The division management insists that the budgets were developed realistically but admits sales were down. The division has been under pressure to improve profitability. Corporate Management has asked you to identify the primary cause of the shortfall â?" revenue or costs?
Address the following as you develop your answer to Corporate.

1. How will you approach your analysis of the situation?
2. What variance analysis and / or trends would be helpful to evaluate?
â?¢ What are three possible situations that could be the cause for the shortfall in profits?
3. What actions would you recommend for these three possible situations?
4. What recommendations would you make to management to improve the budget process for next year?

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Dear student,

Imagine that for the second quarter in a row, profits are down at Waterfall division. Division Management budgeted $250,000 in profits for the 2nd quarter but actual results were only $197,000 in profits. The division management insists that the budgets were developed realistically but admits sales were down. The division has been under pressure to improve profitability. Corporate Management has asked you to identify the primary cause of the shortfall â?" revenue or costs?
Address the following as you develop your answer to Corporate.

1. How will you approach your analysis of the situation?
The budgeted profit of the Company is $250000 while the actual profit is $197000. The unfavorable variance in the profit should be analysed by finding out the reasons for the variance and the persons who are responsible for the unfavorable variance and what are the steps that need to be taken to improve the profitability. Also the analysis should be made whether realistic budget/standard has been set and whether there is any need for correcting the standard.

2. ...

Solution Summary

Budget variance analysis is examined for the second quarter row and profits.

$2.19