Free Essay

Variance Budget

In: Other Topics

Submitted By brich9107
Words 810
Pages 4
Variance Analysis

HCA-240

Variance Analysis

The many reasons as to why the budget for this month has gone over have many factors involved. For a $5,000 favorable variance on staffing, the department head can state that the company was able to obtain a 25 % discount from a new supplier, which resulted in a savings for the department. Another example would be when you have a $25,000 unfavorable variance in sick time for many employees, the department head would state there was an outbreak earlier in the season and this was not expected, resulting in hourly and sick time expenses that were not anticipated. What we can do, would be to analyze variances by the month, quarter or year. Having budget variances in place can allow at least two sources the things that can be controlled and things that cannot. This time I know that the reason the salaries were higher, we because of the recent storm we had and it cause some staff not to show up for work and other to do overtime. Going forward what we can implement would be an emergency team for weather related issues or natural disaster to ensure that we don’t go over our budget and if we see that we are approaching that then we can implement another plan or process, to help balance it back out like giving comp time or early leave. When uncontrollable factors occur many are often external which then result from occurrences outside of the company such as a natural disasters, which can then throw the budget into a downward spiral.

When we have a favorable variance which will happen, the actual results can sometimes exceed the current budget. When unfavorable variances happen, the actual results can and sometimes fall below what was budgeted. When you are working with a static budget which is designed for only one level of a specific type of activity; the differences between actual results and the static budget for level of output achieved will create static-budget variances. When you have a flexible budget in place it then will allow you to have adjustments for the different levels of activities.

Isolating the causes of variances can help identify the issues or errors when budgeting previously. Identifying and recognizing the errors to the degree to which a goal, objective, or target is met or close to being met will help. Many times performance may be by staff and the company on a whole can have a major effect on the whole budget. When trade-offs among variances are in place this will allow you a little more flexibility when the budget starts to change. Identifying improvements in one area can result in having improvements in other areas that were not considered. However, having substandard performance in one area may be can be balanced off in a least recognized area. We can implement like other companies have developed a rule of thumb as “review all variances exceeding $5,000 or 25% of expected cost, whichever is lower.”

A good reporting system should only report on exceptions. We should explore other options and other processes. At this time, I have attached a series of processes that we could possibly implemented going forward, to ensure that we stay on target for budget for the remainder of the year. We can also hold a series of re-evaluating staff on these previous process and new processes. This will ensure accountability and also create a checks and balances for the department leads as well as the individuals themselves. Communication will be a key; going forward, so perhaps bi-weekly and monthly meeting to ensure we stay on target and also catch any issues before they snowball. In the event issues do arise we can have the proper teams and processes in place to help resolved the issue quickly as to not exceed the budget while doing so by having too many persons and too many resolutions and time at hand.
Here are a few of the levels in one company's budget hierarchy: [pic]

A Hierarchy of Variances

[pic]

At the conclusion we can provide a lessons learned as we work on the new budget for the next year or perhaps the next 2-5 years going forward and keep training and communicating any new processes that come about and also perhaps involve the staff in ways they can contribute to adhering to the budget and perhaps also offer incentives to each department.

References:

Financial Management Development: http://www.financialmanagementdevelopment.com/Slides/handouts/213.pdf Accounting Coach: http://www.accountingcoach.com/online-accounting-course/30Xpg06.html Investopedia: http://www.investopedia.com/terms/b/budget-variance.asp Variance Analysis Cost Management http://www.doublegist.com/application-variance-analysis-tool-cost-control-service-industries/ The Meaning of Budget and Budgeting Terms
http://www.business-case-analysis.com/budget.html

Similar Documents

Free Essay

Budget Variance

...Budget Variance Every hospital faces many challenges, but one of the most difficult challenges is knowing how to manage expenses. When a hospital is planning their budget not only do they have to plan a budget that is beneficial for their staff but also high level care for their patients. With so much in society changing such as technology, increase health care cost, and government restrictions it makes planning the budget very challenging. In order to analyze how expenses are being spent compared to the budget that is allotted for them, budget variances have to be made (accountingtools.com, 2013). These variances have to be extremely well detailed in order to make an accurate budget for the following year. Things that should be taken into consideration when doing a budget variance are variance reports, interpreting the results of variance reports and analyzing these reports based on actual performance, and developing a way to better the budget based on these results. The purpose of this paper is to fully analyze all factors that should be considered for a budget variance for a hospital. The very first step for a budget variance is to develop a variance report (accountingtool.com, 2013). There are various factors that should be analyzed to produce a proper variance report such as how many beds are available, how many patients are seen daily, how much staff is available or working in a specific day, how many supplies will be used, and how much utilities such as......

Words: 1018 - Pages: 5

Premium Essay

Budget and Variance Report

...Week 6 Problem Flexible Budget and Variances NOTE: It is expected that this problem will be completed using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab. The Grant Company had developed a Static Budget for 2005 for one of its major departments. By the end of the year, the owner was quite pleased since he knew that sales were running above the projections. He was confident that 2005 was going to be the best year ever for this important part of the company! When the 2005 financial statements were completed, it was discovered that the gross profit for the department was lower than had been originally projected. But sales were up! What happened? You have been hired to determine why 2005 was not a "banner year"! You have been supplied with the original Static Budget and the actual results as follows: Static Budget Actual 2005 Figures Units Sold 10,000 11,000 Revenue $1,000,000 $1,078,000 Material 300,000 350,900 Labor 250,000 247,500 Variable Overhead 150,000 194,700 Fixed Overhead 200,000 195,000 Gross Profit $100,000 $89,900 You are also provided with the following information regarding standards and actual results: Standard Actual Selling price $100 per unit $98 per unit Cost of materials $15 per foot $14.50 per foot Materials per unit 2 feet per unit 2.2 feet per unit Labor rate $25 per hour $30 per hour Labor usage 1 hour per unit 0.75 hours per unit Variable overhead rate $30......

Words: 399 - Pages: 2

Free Essay

Budget Variance

...Lawsuit in the Hospital It is an indisputable fact that health care business inherently carries a unique set of risks as a business organization; lawsuits by patients are common. What is not common is the fact that a trained professional who has sworn by the Hippocratic Oath to “do no harm,” would seek to file a lawsuit against a hospital because his service is no longer needed because of the new direction that the hospital is going (Grand Canyon University, 2011). To be fair, this physician is claiming an “injury.” It is also fair and true to say that this claim was made after this physician was notified that the relationship will be severed after four months. Due to the sequence of events and the circumstances of this case, any logical, objective, and fair-minded observer would question the underlying motive of this claim and, subsequently, its validity. However, since cases like this are not usually adjudicated in the moral court or court of public opinions, this facility is prepared to explore its options and seek resolution either through a formal arrangement, a formal institution, or a legal entity such as the following: Court of law, arbitration, mediation, and / or settlement. In order to make an informed and appropriate decision, it is not only necessary to analyze and fully understand each choice conceptually and practically, but it is also important to assess the pros and cons as well. ......

Words: 1490 - Pages: 6

Premium Essay

Essay 1

...Chapter 10 Flexible Budgets and Performance Analysis Solutions to Questions 10-1 The planning budget is prepared for the planned level of activity. It is static because it is not adjusted even if the level of activity subsequently changes. 10-2 A flexible budget can be adjusted to reflect any level of activity—including the actual level of activity. By contrast, a static planning budget is prepared for a single level of activity and is not subsequently adjusted. 10-3 Actual results can differ from the budget for many reasons. Very broadly speaking, the differences are usually due to a change in the level of activity, changes in prices, and changes in how effectively resources are managed. 10-4 As noted above, a difference between the budget and actual results can be due to many factors. Most importantly, the level of activity can have a very big impact on costs. From a manager’s perspective, a variance that is due to a change in activity is very different from a variance that is due to changes in prices and changes in how effectively resources are managed. A variance of the first kind requires very different actions from a variance of the second kind. Consequently, these two kinds of variances should be clearly separated from each other. When the budget is directly compared to the actual results, these two kinds of variances are lumped together. 10-5 An activity variance is the difference between a revenue or cost item in the static planning budget and the same item......

Words: 824 - Pages: 4

Premium Essay

Jet2 Task2

...Discuss budgetary items that raise concern in the budget planning A master budget is the central planning tool for a company; it should include the following areas: * Direct Labor Budget * Direct/Raw Materials Budget * Finished Goods Budget * Manufacturing Overhead Budget * Production Budget * Sales Budget * Selling and Administrative Expense Budget Competition Bikes’ budget is subdivided into smaller budgets. The objective of the master budget is to provide a forecast based on sales projections for the next budget period (quarter, semester or a year). The master budget should meet the company goals. After analyzing the master budget for Competition Bikes we found a few areas of concern: The first one was a disregard of previous years’ trends. When year eight was analyzed we discovered changes in the economy which negatively impacted the company because of a decrease in sponsorships affecting the company’s sales. Competition Bikes should have taken a more conservative approach and set the budget at the same level of sales of year eight or have a more conservative increase on sales projections at no more than 1.5%, to reduce the risk of creating over sales and as a consequence to trigger a ripple effect of over-budgeting the operational and production budgets. Another area of concern is that utilities expenses were double recorded, once under “utilities” and another under “utilities and services”. In the same area of utilities we......

Words: 1670 - Pages: 7

Free Essay

Cost Case Solutn

...& 8 TEMPLATE ICQ1 7-34 (30 min.) Direct manufacturing labour and direct materials variances, missing data. 1. Flexible Budget (Budgeted Input Actual Costs Qty. Allowed for Incurred (Actual Actual Input Qty. Actual Output Input Qty. × Actual Price) × Budgeted Price × Budgeted Price) Direct mfg. labour Price variance Efficiency variance Flexible-budget variance 2. Unfavourable direct materials efficiency variance of $12,500 indicates that more pounds of direct materials were actually used than the budgeted quantity allowed for actual output. = Budgeted pounds allowed for the output achieved = Actual pounds of direct materials used = 3. Actual price paid per pound = = $ 4. Actual Costs Incurred Actual Input × (Actual Input × Actual Price) Budgeted Price Price variance ICQ2 8-16 (20 min.) Variable manufacturing overhead, variance analysis. 1. Variable Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2013 ......

Words: 263 - Pages: 2

Free Essay

Midterm

...a   2)  The flexible budget contains:    2)  _______  A)   udgeted amounts for actual output   b B)   udgeted amounts for planned output   b C)   ctual costs for actual output   a D)   ctual costs for planned output    a   3)  If initial budgets prove unacceptable, planners achieve the MOST benefit from:    3)  _______  A)   lanning again in light of feedback and current conditions   p B)   eciding not to budget this year   d C)   ccepting an unbalanced budget   a D)   sing last yearʹs budget    u   4)  The purpose of the equivalent-unit computation is to:    4)  _______  A)   onvert completed units into the amount of partially completed output units that could be  c made with that quantity of input  B)   ssist the business in determining ending inventory  a C)   onvert partially completed units into the amount of completed output units that could be  c made with that quantity of input  D)   oth B and C are correct.    B   5)  For variable manufacturing overhead, there is no:    5)  _______  A)   pending variance   s B)   fficiency variance   e C)   lexible-budget variance   f D)   roduction-volume variance    p    Problem #1 ( 20 points )    Gerdie Company has the following information:       Month  Budgeted Sales    March  $50,000    April  53,000    May  51,000    June  54,500    July  52,500    In addition, the gross profit rate is 40% and the desired inventory level is 30% of next  monthʹs cost of sales.     Required:  Prepare a purchases budget for April through...

Words: 1040 - Pages: 5

Premium Essay

Accounting

...and allow for normal breaks and work interruptions. 11-3 Under management by exception, managers focus their attention on results that deviate from expectations. It is assumed that results that meet expectations do not require investigation. 11-4 Separating an overall variance into a price variance and a quantity variance provides more information. Moreover, price and quantity variances are usually the responsibilities of different managers. 11-5 The materials price variance is usually the responsibility of the purchasing manager. The materials quantity and labor efficiency variances are usually the responsibility of production managers and supervisors. 11-6 The materials price variance can be computed either when materials are purchased or when they are placed into production. It is usually better to compute the variance when materials are purchased because that is when the purchasing manager, who has responsibility for this variance, has completed his or her work. In addition, recognizing the price variance when materials are purchased allows the company to carry its raw materials in the inventory accounts at standard cost, which greatly simplifies bookkeeping. 11-7 This combination of variances may indicate that inferior quality materials were purchased at a discounted price, but the low-quality materials created production problems. 11-8 If standards are used to find who to blame...

Words: 14048 - Pages: 57

Premium Essay

Software Associates

...Assignment 1: Variance Analysis Report In order to perform a variance analysis report Jenkins calculated the actual revenues and expenses and found the difference which was $296,610 in profits. Then Jenkins did the same with budgeted values and found the budgeted profits to be $606,350. The variance amount in turn is $309,960 under budget. Also, the variance amount for revenues is $32,100. This number is favorable due to the fact that they made more than what they had budgeted for. But on the contrary, the variance amount for expenses was $342,060, which was unfavorable because they spent far more than what they had budgeted for. This information would not be sufficient in order to explain to Norton why their profit percentage is nearly half of what they budgeted. This variance analysis report only shows the raw numbers and not any details to why they spent more on expenses than what they budgeted. Jenkins would have a difficult time explaining details to why they went over budget. She would need to show him a detailed expense report of the budgeted items and the actual amount they spent on the items. Then she would have to clearly define which items went over budget and why. This variance analysis report would not help Jenkins in the 8 am meeting she has would need to provide more information. Assignment 2: Preparing the Budget: Variance Analysis Report In order to provide more information to Norton, Jenkins will need to perform a variance analysis report.......

Words: 1691 - Pages: 7

Premium Essay

Jet2 Task 2

...A1. Budget Concerns Competition Bikes budget has several areas of concern that need to be address. 1. Units expected to be sold for year nine is 3510. Competition Bikes is predicting that they will sell 3510 Bikes but they only sold 3400 Bikes in year eight down 15% from year seven 4000 units sold. Competitions Bikes has budget to high because the current economic down turn is showing no signs of relief for the next three years. Many of Competition Bikes customers are sponsored riders and many sponsors have pulled their funding to their rides. Competition Bikes has not presents a plan that would support their projections. Competition Bikes should lower there should lower the expected units sold so not to over order raw materials that will not be needed. 2. Competition Bikes has budgeted $150,000 for utilities for year nine the same as year eights. In year seven Competition Bikes only spent $135,000 on utilities and they produced 4000 units compared to year eights 3400 units. The utilities budget is too high it should be lowered because less units than 4000 will be produced. 3. Total cost of frame materials is $1,326,778 to produce 3510 units, they have budgeted too high for raw materials need for year nine for two reasons. One they have over projected on the amount of units they will sell in year nine. Two Competition Bikes has $91, 573 in raw materials and $130,260 of work in process inventory from year eight that can be used in year nine to reduce this cost. 4. Other......

Words: 1535 - Pages: 7

Premium Essay

Strategic Management

...S T R A T E G I C M A N A G E M E N T - Samenvattingen papers - | Naam | | 1 | Leading Change: Why Transformation Efforts Fail | x | 2 | Conceptual models and the Cuban Missile Crisis | | 2 | The Hidden Traps of Decision making | x | 3 | Control in the age of empowerment | x | 3 | The Real Budget Crisis: Stop Rewarding Forecasting and Negotiating Instead of Real Performance | x | 3 | Note on flexible budgeting and variance analysis | x | 3 | Borealis Case | | 4 | Note on Organization Structure | | 4 | Note on Organization Culture | | 4 | Designing Organizations for Performance: The Alignment of Design and Strategy | | 5. | On the folly of rewarding A, While hoping for B | | 5 | Incentives within Organizations | | 5 | Strategy to implementation: Seeking alignment | | 5 | Measuring performance | | 7 | GE’s growth strategy: The Immelt inititative | | Week 3 Control in Age of Empowerment Creativity and control don’t have to conflict Failure to control employees appropriately Managers can encourage innovation among employees while ensuring adequate control by using four powerful management systems or levers. 1- Diagnostic control systems Traditional monitors of critical performance outcomes such as costs and revenues 2- Belief systems Encompass the company’s values, mission and other statements of philosophy 3- Boundary systems Based on power of negative thinking Tell your employees what not to do 4- Interactive......

Words: 1508 - Pages: 7

Free Essay

Variances

...Advanced Variance Analysis: Calculation and Interpretation Subject: Professional 1 Strategic Management Accounting. Variance analysis is examinable both at Formation 2 (Management Accounting) and at Professional 1 (Strategic Management Accounting) levels. One main difference in syllabus between the two papers is that the Professional 1 (Strategic Management Accounting) syllabus includes ‘advanced’ variances, as follows: • • • • Materials mix & materials yield variances; Sales mix & sales quantity variances; Planning & operational variances; Market share & market size variances. Two issues which students need to master in order to score well in a question on advanced variance analysis are: 1. Accurate knowledge of the formulas. In my experience, examination candidates are much more likely to remember the formulas correctly if they understand the relationship between ‘advanced’ variances and ‘basic’ variances. Therefore, this will guide my approach to the examples in this article. 2. Ability to write a good quality narrative interpretation of the causes of the variances. The golden rule here is that it is not adequate to explain each variance in isolation. Thus, it is not enough to write (for example) ‘this company had an unfavourable market size variance because its actual market share was less than its budgeted market share’. You need to explain the apparent reasons why their actual market share was less than their budget market share,......

Words: 2719 - Pages: 11

Premium Essay

Jet2 Task 2

...Stacy Raudman 000202145 JET2 Task 2 A1 Discuss budgetary areas that raise concern in the budget planning In any business, a budget serves a specific purpose. It serves as a forecast of money coming in and money going out which then shows whether or not there is a profit. It also serves as a tool for making decisions. And, lastly, it is a means to monitor how a business is performing. Watching for profits and/or losses, will tell a company if their strategies are working or not and whether they should move in a different direction for improvement. Money, in any business, needs to be controlled and decisions need to be made on where is best for that money to be spent in the best interest of the company. Monitoring how a business is performing can tell management or investors if the company is living up to their expectations. If it isn't, the company can have the opportunity to move in a different direction for improvement. In reviewing the budget and proforma statement for Competition Bikes, there are a few areas of concern which are discussed below. In 2006, the company sold 3000 units and had a nice increase in sales in 2007 to 4000 units. In year 8 however, there was a decrease in sales down to 3400 units. The company is forecasting sales in 2009 to be 3510 units and continuing increasing the following two years as well. Due to the stated economic decline and cut back on sponsors that pay for bikes for professional riders, the company is......

Words: 1665 - Pages: 7

Free Essay

Suer

...1. Results Interpretation: What do each of the following variance results tell us about the Clinic (i.e., what's the good news and what's the bad news)? Analyze in the aggregate and for each product line, as appropriate. If an analysis applies to more than one product line, you may combine product lines in your discussion for convenience. Use of bullet points are fine and, to the extent possible, encouraged. Profit (total) variance = actual profit – static profit Revenue= Member months x premium We see that the overall profit is -$329,366 than what was expected . What caused this variation? When it comes to revenue, ideally HMOs would like to see enrollment high and utilization low along with costs down making profit high. The main contributors to profit variances are: Revenue issues, Cost issues, or BOTH. Revenue – Cost= Profit. HMOs make money through member months (enrollment) x premiums. • The main issue with total profit variance is insufficient revenue from PC Commercial and increased costs from the other three product lines due to high utilization from which created negative variances causing decreased profits. • The static budget expected margin was 12.7% The actual profit was significantly less than static budget with the actual total margin cost being at 2.7% Revenue Variance: • The PMPM rate increased in PC comm. the biggest provider, which impacted its revenue through decreased enrollment. Its enrollee amounts were less than the......

Words: 354 - Pages: 2

Premium Essay

Determining Financial Viability

...Variance Analysis Blake Richardson Grand Canyon University HCA-240 March 16, 2013 Variance Analysis To really understand this paper, one should understand what variance analysis does for the entity. Variance analysis is the process of examining every variance between what is actual and budgeted or expected and standard cost to develop reasons as to why the budgeted results were not met. In hospitals, there are many different factors that a financial manager should consider before submitting a variance report to the vice president of the entity. These factors can include staff receiving too much overtime, hired too many staff members for the increase in patients, and maybe even one of the staff members forgot to scan in all of the equipment. Once the problem is recognized and determined it is sent up the chain of command, where the variance reports are interpreted and the expected results are given. In this setting, there could be quite a few factors that had potentially created higher salaries and lower supplies. To determine this we need to look at the changes in input prices, productivity and the changes in departmental volume. (Cleverley, Song, & Cleverley, 2011, p. 386) For a manager to be able to determine this they should first recognize the problem, determine the cause, and then correct the problem. Looking at the efficiency cost, we can determine how long it has been going on for, the loss per time unit, and if the problem is correctable. Once......

Words: 821 - Pages: 4