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Favorable, unfavorable variances and flexible budgeting

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1- "By the time an accountant has created all the variance analyses, a good manager should already know where the large favorable and unfavorable variances are and what caused them" Find support for and against this quote from articles and from your own experience and understanding.

2- What's the big deal with "Flexible Budgeting"? Post some strong opinions on the pros and cons of Flexible budgeting--your own opinions and opinions from articles you have read.

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Solution Summary

This solution defines favorable, unfavorable variances and flexible budgeting. It also discusses why good managers must know the source of large favorable and unfavorable variances. In addition, the solution discusses the pros and cons of Flexible budgeting

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Problem #1:

The concept of favourable and unfavourable variance is used very often in businesses especially in manufacturing. On one hand, an unfavorable variance arises when the actual cost are greater than standard costs that are set by the company. On the other hand, favorable a variance arises when actual costs are less than standard cost. When the variance is favorable, this is an indication to management that if everything else stays as is, the company is likely to make more profit than initially expected. Managers are often the people who are in good condition to explain why ...

Solution provided by:
Edwin Sinclar, MBA
Education
  • MBA, Aspen University
  • Bachelor of Science , Berea College
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