Beverley Lionel
Module 4 Budgeting, Variance Analysis, and Performance Evaluations ACC 501 Accounting for Decision Making
Professor. Sunil Dixit
March 5, 2017
Memo
Introduction
Budgeting plays an important role in an organization, it help leaders in the organization make plans and perform according to the desired budget and deviate from it as less as possible. In this paper the budget analysis is presented and the variance will be discussed. The outcome of increasing the marketing expenses in T & P Fashion, it has be decided that the management must pay attention to the variances and work towards its improvement.
The flexible budget is a type of budget where the budget adjusts itself on the basis of the volume …show more content…
In an organization both types can be followed, given the different function they offers. The main reason why static budget is used is due to the benefit of variance analysis. It helps management to plan for future years when they know they have a comparison between what was expected and what actually occurred”.
Flexible budget, however changes based upon volume, it provides a greater level of control. It is easier for the management to change the budget during the course of business depending on the change in any assumptions or market fluctuations. According to Davoren “A flexible budget permits one to make modifications when these activities go beyond or don’t meet the desire results. The business environment is changing quickly and therefore one must adapt to the change. Using flexible budget places you in a better position to provide accommodation for such changes, make opportune time for operational adjustments and take the greatest benefits from opportunities that exist in external …show more content…
According to Edmunds “A budget variance analysis is a review of a budget to determine if you made your numbers, and if not, where you erred and why. Variances found in budgets are generally classified as unfavorable or favorable, depending on whether the difference in your performance was good for your business or bad for the company”. However, despite various advantages associated with variance analysis, it does have certain drawbacks that makes it more detrimental for the organization rather than beneficial.
Variance analysis makes the management concentrate on bigger variances that results in the neglecting the smaller ones; these smaller variances if taken together may become material in nature. Variance analysis is difficult to apply in service sectors as the majority of the expenses are related to the overhead expenses and not the production expenses. The approach of variance analysis is related to the yearly budget due to which the time gap to study the reasons for variances increases and that may affect the results of the variance (Zhang,