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