5.2g Variance Analysis Flashcards
1
Q
Variance analysis definition
A
Where an actual figure differs from that expected in budget
2
Q
Favourable variable analysis definition
A
When costs are lower than expected or revenue is higher than expected
3
Q
Adverse variable analysis definition
A
When costs are higher than expected or revenue is lower than expected
4
Q
What is variance analysis used for?
A
- To find out what went right and wrong
- Inform decision making
5
Q
What decisions can be made as a result of favourable variances?
A
- If caused by a pessimistic budget, set more ambitious targets
- Find what was responsible for improvement and do more of it
6
Q
What decisions can be made as a result of adverse variances?
A
- Change marketing mix
- Streamline production to be more efficient
- Motivate employees to work harder
7
Q
External causes of variance:
A
- Actions of competitors
- Changes in economy
- Costs of raw materials changing
8
Q
Internal causes of variance:
A
- Improving efficiency
- Overestimating amount it could save by streamlining production methods
- Underestimating cost of making a change
