5.2g Variance Analysis Flashcards

1
Q

Variance analysis definition

A

Where an actual figure differs from that expected in budget

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2
Q

Favourable variable analysis definition

A

When costs are lower than expected or revenue is higher than expected

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3
Q

Adverse variable analysis definition

A

When costs are higher than expected or revenue is lower than expected

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4
Q

What is variance analysis used for?

A
  • To find out what went right and wrong

- Inform decision making

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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
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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
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7
Q

External causes of variance:

A
  • Actions of competitors
  • Changes in economy
  • Costs of raw materials changing
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8
Q

Internal causes of variance:

A
  • Improving efficiency
  • Overestimating amount it could save by streamlining production methods
  • Underestimating cost of making a change
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