Effectively Investigating Budget Variance

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• This post addresses favorable and unfavorable variances.

  A favorable variance is a variance that, when compared to the company's budget, the actual amount of the revenue or expense makes the company's income higher than what was expected.

• Advanced Cost Accounting: Favorable Variances

  On a larger scale, upper management could be "padding" the budget in an effort to come under budget, and if people are not given goals to achieve they will obviously not acheive them.

• The Benefits of Budgeting

  A favorable variance denoted F- is a variance that increases operating income relative to the budgeted amount.

• Should Variances Be Investigated Regardless of if they are Favorable or Unfavorable?

  So, the benefits exceed the costs and the variance should be investigated. However, the motive for investigating variances is not just to reduce costs.

• Role provided by break-even point, major HMO, variances

  If the cost is fixed and the dollar amount large (based on size of total budget), then the cost might need investigating. What if $1,000 difference is favorable and should that be investigated?

• Cost Accounting - Flexible Budgets

  This is an example of favorable variance but an ineffective signal. Vice versa will show unfavorable variance but will be an effective signal. 2.

• MCQ Managerial Accounting: Blockbuster, Quaker, overhead, budgeted, residual income

  What should be the focus when management is investigating variances?

• Comparing Two Sets of Results

  When investigating times required for drive-through service, the following results (in seconds) were obtained. Find the range, variance, and standard deviation for each of the two samples, then compare the two sets of results. 

• Difference between a static budget and a flexible budget

  Budgets are effectively nothing more than educated best guesses on the future prospects and allocation of resources for a company.