variances

Question 1

why are budgets prepared?

Answer 1

so that the enterprise can plan their revenue and expenditure to make a profit

Question 2

what is the variance?

Answer 2

sometimes when there is a difference between what is planned for in the budget and what actually happens

Question 3

when will a variance arise?

Answer 3

when there is a difference between actual and budget figures

Question 4

favourable variances:
what is a favourable variance?

Answer 4

when the actual figures are better than the budgeted figures

Question 5

favourable variances:
what could have been lower and higher than expected when compared to the budget?

Answer 5

actual costs were lower
actual revenue/profits were higher

Question 6

favourable variances:
when will favourable variances occur? (3)

Answer 6

due to cheaper costs when purchasing materials, increased efficiencies in the manufacture or production of their products or increased sales

Question 7

adverse variances:
what is an adverse variance?

Answer 7

is when the actual figures are worse than the budgeted figures

Question 8

adverse variances:
what could have been lower and higher than expected compared to the budget?

Answer 8

actual costs were higher
actual revenue/profits were lower

Question 9

adverse variances:
what will an enterprise do the sooner an adverse variance is detected?

Answer 9

the quicker the enterprise can focus on fixing the problems.

Question 10

adverse variances:
why may adverse variances occur?

Answer 10

higher production costs, fewer sales and new competitors in the market

Question 11

why will a favourable variance have a positive impact on an enterprise?

Answer 11

means it will be making more profit than the enterprise originally budgeted for

Question 12

why will an adverse variance will have a negative impact on an enterprise?

Answer 12

means it will be making less profit than the enterprise originally budgeted for