External and internal factors that cause variance

• Factors causing variances


  • External
  • Internal
• External factors


  • Competitor behaviour and changing fashions may increase or reduce demand for products
  • Changes in the economy can change how much workers' wages cost the business
  • The cost of raw materials can go up-e.g. if a harvest fails
• Internal factors


  • Improving efficiency (e.g. introducing automated production equipment) causes favourable variance
  • A firm might overestimate the amount of money it can save by streamlining its production methods
  • A firm might underestimate the cost of making a change to its organisation
  • Changing selling price changes revenue-this creates variance if it happens after the budget's
  • Internal causes of variance are a big concern. They suggest internal communication needs improvement