Explore BrainMass

Budgetary Variance Model

In the attached paper, the answers are already given. However I am not able to interpret the four pages because I don't have a clue what the answers mean. Can you please help me? Please given me a tutorial with ideas and references that I can look up and read to get more of an understanding of the budgetary variance model, based on the budget that is attached. Please interpret the budget in details, with clear and lengthy explanations.

This tutorial that you will help me with is not homework but it will help me to develop a better understanding and use it as a reference for the remaining weeks of my classes in this subject.

Please see the budget at the top and help me with the answers at the bottom of the pages.

Thank you.


Solution Preview

Budgetary Variance Analysis

In order to analyze the budgetary variance, initially, total variance will be calculated, which can be done through following formula:

Total Variance = Actual Costs - Assigned Costs
= Actual Costs - (Actual Volume * Budgeted Cost per Unit)
= $1,800,000 - (100,000 × $16.00)
= $1,800,000 - $1,600,000
= $200,000 (Unfavorable)

On the basis of the above calculation, it can be stated that actual cost is greater than assigned cost. It shows that the radiology department has an unfavorable variance of $200,000 that opposes the claims of the manager to have a favorable variance of $120,000. A favorable variance occurs, when the actual expenses are lower than the budgeted amount or when the actual revenues are higher than budgeted. An unfavorable variance occurs, when actual expenditures are higher than budgeted or the actual revenues are lower than expected. In this case, actual costs are higher than budgeted, so it can be concluded that the claims of the manager to possess the favorable variance cannot be said effectively (Kinney & Raiborn, 2012).

The unfavorable total variance will have to be analyzed further to evaluate the performance of the department manager. For this, the total variance can be broken into two types of variances that are spending and volume variances.

On the other hand, spending variance can be calculated by the below formulas:

Spending Variance = Actual Costs - ...

Solution Summary

The expert examines the budgetary variance model.