• Unit 7: Variance Analysis

    In this unit, we examine how managers analyze their budgets and actual results to make better decisions. We will explore various methods for rationalizing the master budget for actual results. When actual sales volume is higher than planned in the master budget, variable costs should also be higher. For example, we will follow how Jerry’s Ice Cream modifies its planned master budget during long, hot summers. We will also consider various "problems" that explain variance and how to use accounting for variance to improve ongoing management decisions.

    Completing this unit should take you approximately 7 hours.

    • 7.1: Flexible Budgets

    • 7.2: Standard Costs

    • 7.3: Direct Materials Variance Analysis

    • 7.4: Direct Labor Variance Analysis

    • 7.5: Variable Manufacturing Overhead Variance Analysis

    • 7.6: Determine Which Cost Variance to Investigate

    • 7.7: Using Variance Analysis

    • 7.8: Fixed Manufacturing Overhead Variance Analysis

    • 7.9: Recording Standard Costs and Variances

    • 7.10: Units 6 and 7 Capstone Project

    • Unit 7 Assessment

    • Unit 7 Conclusion

      This unit examined a critical part of the budgeting cycle: variance analysis. You learned how to create a flexible budget that incorporates actual results into the master budget. Standard costing, direct labor, and material variance were also considered. We concluded by looking at fixed overhead and its use. In the next unit, we will look at the capital budget, where fixed costs can become variable. A good way to think about capital budgeting is that they are long-term plans, and a company can only plan for the long term by living in the short term and working with its fixed costs.