Variance

• Variance

  The difference between actual and budgeted figures
• Variance

  • A variance means the business is performing either worse or better than expected
  • A favourable variance occurs when a firm is performing better than expected
  • An adverse variance occurs when a firm is performing worse than expected
• Calculating variance

  1. Actual figure - Budgeted figure

  2. Determine if it is favourable or adverse
• Favourable variance

  • Revenue or profit is more than the budget
  • Costs are below the cost predictions in the budget
• Adverse variance

  • Selling fewer items than the income budget predicts
  • Spending more on an advert than in the budget
• Small variances may not require action, but large variances will require investigation and action
• Variance analysis helps managers make decisions and fix problems, and it'll help you sail through your studies
• Large variance can demotivate
• Small variance isn’t a problem