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...

...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...

...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 annual budget for...

...decimal places)
2. Find the value of z if the area 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...

...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;...

...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...

...Exercise 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...

...
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...

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