Variances
Variances can be either:
* Positive/favourable (better than expected) or
* Adverse/unfavourable ( worse than expected)
A favourable variance might mean that:
* Costs were lower than expected in the budget, or
* Revenue/profits were higher than expected
By contrast, an adverse variance might arise because:
* Costs were higher than expected
* Revenue/profits were lower than expected
What causes budget variance?
There are four key reasons and it is important that good managers recognise the differences, because the action required is may be completely different in each case.

The four reasons are:
1. Faulty Arithmetic in the Budget Figures
2. Errors in the Arithmetic of the Actual Results
3. Reality is Wrong
4. Differences between Budget Assumptions and Actual Outcome 1. Faulty Arithmetic in the Budget Figures
It is perfectly possible to have an error in the budget. This includes errors of commission or duplication as well as pure arithmetic. One action is to make a note to ensure it does not happen again when the next budget is being done. Other action depends on the error. Assume the budget stated no overdraft would necessary and it now appears one is required because the sales forecast was used to predict cash inflows rather than the debtor payments. There are two options: Go to the bank and ask for an overdraft, or take some other action to improve cashflow to stay within the budget cash figure. The original budget numbers will need to be changed to reflect the new circumstances and future reporting should be against the revised budget (often called a reforecast or latest estimate.) Action is required but it may not be within the area where the error was made. 2. Errors in the Arithmetic of the Actual Results

It is perfectly possible for the actual results to be reported wrongly. This includes the use of the wrong category, omission of costs, double counting of income etc. One well known way of staying within...

...Introduction of cash budgeting
Cashbudget is a inputs and outputs of a business or a individual over a long period of time (e-conomic, 2013). A cash budgeting is relate to a organisation’s plan to plan ahead and to plan ahead of the future in a company. It usually expressed it as numbers of cash budgeting. The main objective of preparing cashbudget is to ensure that the cash is sufficient for the purpose of capital or revenues expenditure. It is also to have cash in advanced in the case of shortage of funds (Fundamentals of financial management,pg32).
Having a cashbudget is a important factor as it allows the company to have targets sales, minimize the loss in a company and to earn maximum revenues. It also allows the company to manage their business as well as to compare the sales between the actual and the budgeted sales (TheTimes100, 2013). Therefore, I am very much agree that without cash budgeting , management of any business will be be ineffective and will have no aims to improve further.
Advantages of using cashbudget
The advantages of using cashbudget in our daily life or a business allows you to spend within your limits, forcing you not to overspent it and not incur debts (eHow,2013). The main purpose is to compel planning and...

...Introduction to budget
A budget is a financial plan for business, prepared in advance. It is defined by cima as ‘a plan expressed in money’.
Cash flow forecasting is the process of estimating cash inflows and cash outflows over a period of time, usually for a period of 1 year.
CashBudget is the process of estimating cash inflows and cash outflows over a period of time, usually prepared monthly.
Cash flows is the amount of money flowing into and out of a business over a period of time.
Cash inflows are the receipts of cash, typically arising from sales of items, payment of debtors, loan received, rent charged, sale of assets and interest received.
Cash outflows are payment of cash, typically arising from the purchase of items, payment to creditors, loans repaid or given, rental payment, purchase of assets and interest payments.
Net Cash flow is the sum of cash inflows to an organisation minus the sum of cash outflows over a period of time.
Cash outflows normally take place before cash inflows. Typically a business’s cash outflow will follow these stages:
Purchase of Material = Cash Outflow
Transformation of inputs into outputs = Cash Outflow.
Sale of outputs =...

...Susan Quinn
November 20, 2011
In establishing the budget the first determination that was made was the amount of money necessary for each of the designated areas of spending per month. This was determined by dividing the amount of money currently allotted annually by the months in the year (12) to determine if the budgeted amount was on or off target. The amount of expenditure in each category was also considered. For example, the annualbudget for personnel is 250,000. If this number is divided by 12 months the amount of money allotted to spend for personnel during each month of the fiscal year is 20,833. The amount of money expended during the month of March was 20,000. (P. Slimmer, personal communication, November 17, 2011).
When considering the expenditure for the month of March the amount seems to be on target. However, when compared to the amount of money spent year to date there is a discrepancy. The amount spent year to date is $150,000. If $150,000 is divided by the nine months of the fiscal year that have already passed, spending equals approximately 16,666 per month. This is an obvious disparity. The amount of money that should have been spent year to date on personnel should be 187,500. This means that year to date 37,500 has not been spent that should have been used to pay staff.
There are many possible reasons why there would be such a discrepancy in the budget at this point the...

...under a Standard Normal curve
a) to the right of z is 0.3632;
b) to the left of z is 0.1131;
c) between 0 and z, with z > 0, is 0.4838;
d) between -z and z, with z > 0, is 0.9500.
Ans : a) z = + 0.35 ( find 0.5- 0.3632 = 0.1368 in the normal table)
b) z = -1.21 ( find 0.5 – 0.1131 = 0.3869 in the normal table)
c ) the area between 0 to z is 0.4838, z = 2.14
d) the area to the right of +z = ( 1-0.95)/2 = 0.025, therefore z = 1.96
3. Given the Normally distributed variable X with mean 18 and standard deviation 2.5, find
a) P(X < 15);
b) the value of k such that P(X < k) = 0.2236;
c) the value of k such that P(X > k) = 0.1814;
d) P( 17 < X < 21).
Ans : X ~ N ( 18, 2.52)
a) P ( X < 15)
P ( Z < (15-18)/2.5) = P ( Z < -1.2) = 0.1151 ( 4 decimal places)
b) P ( X < k) = 0.2236
P ( Z < ( k – 18) / 2.5 ) = 0.2236
From normal table, 0.2236 = -0.76
(k-18)/2.5 = - 0.76, solve k = 16.1
c) P (X > k) = 0.1814
P ( Z > (k-18)/2.5 ) = 0.1814
From normal table, 0.1814 = 0.91
(k-18)/ 2.5 = 0.91, solve k = 20.275
d) P ( 17 < X < 21)
P ( (17 -18)/2.5 < Z < ( 21-18)/2.5)
P ( -0.4 < Z < 1.2) = 0.8849 – 0.3446 = 0.5403 ( 4 decimal places)...

...have questions about any of the solutions given below. 1. Explain the difference between a population and a sample. In which of these is it important to distinguish between the two in order to use the correct formula? mean; median; mode; range; quartiles; variance; standard deviation. Solution: A sample is a subset of a population. A population consists of every member of a particular group of interest. The variance and the standard deviation require that we know whether we have a sample or a population. 2. The following numbers represent the weights in pounds of six 7year old children in Mrs. Jones' 2nd grade class. {25, 60, 51, 47, 49, 45} Find the mean; median; mode; range; quartiles; variance; standard deviation. Solution: mean = 46.166.... median = 48 mode does not exist range = 35 Q1 = 45 Q2 = median = 48 Q3 = 51 variance = 112.1396 standard deviation =10.59 3. If the variance is 846, what is the standard deviation? Solution: standard deviation = square root of variance = sqrt(846) = 29.086 4. If we have the following data
34, 38, 22, 21, 29, 37, 40, 41, 22, 20, 49, 47, 20, 31, 34, 66 Draw a stem and leaf. Discuss the shape of the distribution. Solution: 2 3 4 5 6 | | | | | 219200 48714 0197 6
This distribution is right skewed (positively skewed) because the “tail” extends to the right. 5. What type of relationship is shown by this scatter plot?
45...

...8-3B a. Master Price / Cost Budget per Unit 18,000 Units $12 $216,000 $ 8 (144,000) 72,000 (20,000) (18,000) $ 34,000 b. Flexible Budget 19,000 Units $228,000 (152,000) 76,000 (20,000) (18,000) $ 38,000
Sales Variable manufacturing Contribution margin Fixed manufacturing Fixed selling and admin. Net income Exercise 8-4B
Sales Variable manufacturing Contribution margin Fixed manufacturing Fixed selling and admin. Net income c.
Master Budget 18,000 Units $216,000 (144,000) 72,000 (20,000) (18,000) $ 34,000
Flexible Budget 19,000 Units $228,000 (152,000) 76,000 (20,000) (18,000) $ 38,000
a. & b. Activity Variances $12,000 F 8,000 U 4,000 F 0 0 $ 4,000 F
Since the per unit sales price and per unit variable manufacturing costs are the same for both the master and flexible budgets, the activity variances are solely attributable to the fact that sales volume was 1,000 units more than planned. The favorable $12,000 sales variance suggests that increased sales are beneficial. However, Irvin needs more information before drawing this conclusion. The increase in sales may have resulted from reducing the actual sales price which could produce negative consequences. The unfavorable $8,000 variable manufacturing cost variance is misleading. The total amount of variable cost is expected to increase when volume increases. This...

...NORMALDISTRIBUTION
1. Find the
distribution:
a.
b.
c.
d.
e.
f.
following probabilities, the random variable Z has standard normal
P (0< Z < 1.43)
P (0.11 < Z < 1.98)
P (-0.39 < Z < 1.22)
P (Z < 0.92)
P (Z > -1.78)
P (Z < -2.08)
2. Determine the areas under the standard normal curve between –z and +z:
♦ z = 0.5
♦ z = 2.0
Find the two values of z in standard normaldistribution so that:
P(-z < Z < +z) = 0.84
3. At a university, the average height of 500 students of a course is 1.70 m; the standard
deviation is 0.05 m. Find the probability that the height of a randomly selected student is:
1. Below 1.75 m
2. Between 1.68 m and 1.78 m
3. Above 1.60 m
4. Below 1.65m
5. Above 1.8 m
4. Suppose that IQ index follows the normaldistribution with µ = 100 and the standard
deviation σ = 16. Miss. Chi has the IQ index of 120. Find the percentage of people who
have the IQ index below that of Miss. Chi.
5. The length of steel beams made by the Smokers City Steel Company is normally
distributed with µ = 25.1 feet and σ = 0.25 feet.
a. What is the probability that a steel beam will be less than 24.8 feet long?
b. What is the probability that a steel beam will be more than 25.25 feet
long?
c. What is the probability that a steel beam will be between 24.9 and 25.7
feet long?
d. What is the probability that a steel beam will be between 24.6 and 24.9
feet long?
e....

...
NormalDistribution
Student’s Name:
Instructorr:
Date ofSubmission:
The table 1 below shows a relationship between actual daily temperatures and precipitation in the month of January 2011. These data was adopted from a meterological station in the states of Alaska, in the United States. Normal distributed data aresymmetric with a single bell shaped peaks. Th maean of the data it significant in indication the point that the peak is likely to occur. In addition, standard deviation indicates the spread, which is usually referred to asthegirth of thebeell shapedcurve (Balakrishnan & Nevzorov, 2003).
Table 1: Relationship between actual daily temperatures and precipitation of January 2011
|Date |Actual Temperatures |Precipitation |
|Jan. 1 |30 |0 |
|Jan. 2 |25 |0 |
|Jan. 3 |31 |0 |
|Jan. 4 |33 |0 |
|Jan. 5 |29 |0 |
|Jan. 6 |36 |0.26 |
|Jan. 7 |36 |0 |
|Jan. 8 |37 |0.01 |
|Jan. 9 |32 |0.21 |
|Jan. 10 |28...

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