Variance Analysis

• What is variance analysis primarily concerned with?

  Comparing actual results to budgeted results
• What are the two variations in reality during variance analysis?

  Adverse and favorable
• What does 'A' stand for in variance analysis?

  Adverse
• What does 'F' stand for in variance analysis?

  Favorable
• What are the three types of budgets mentioned?

  Profit budget, revenue budget, cost budget
• What indicates an adverse situation in profit budgets?

  Reality is lower than expected profits
• What indicates a favorable situation in profit budgets?

  Reality is higher than expected profits
• What indicates an adverse situation in revenue budgets?

  Revenues are lower than expected
• What indicates a favorable situation in revenue budgets?

  Revenues are higher than expected
• How do cost budgets differ in terms of favorable and adverse situations?

  Lower costs are favorable, higher costs are adverse
• How do you calculate profit from revenue and costs?

  Profit = Revenue - Costs
• What is the variance situation for profit?

  Adverse, as actual is lower than budgeted
• What are the key concepts in variance analysis?

  • Adverse: worse than budgeted
  • Favorable: better than budgeted
  • Types of budgets: profit, revenue, cost
• How to interpret variance analysis results?

  • Identify if adverse or favorable
  • Analyze the impact on overall performance
  • Adjust future budgets accordingly