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 what was planned in the master budget, variable costs should also be higher. For example, in one thread, we follow how Jerry’s Ice Cream modifies its planned master budget during a long, hot summers. In another thread, we watch Tony Bell 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.
This unit examined a critical part of the budgeting cycle: Variance Analysis. You have learned how to create a Flexible Budget that incorporates actual results into the Master Budget. Standard Costing and Direct Labor and Material Variance have also been considered. You concluded with a consideration of fixed overhead and its use. In the next unit you look at another 'budget' type, a Capital Budget. In this coming unit, 'fixed' cost can become variable. A good way to think about Capital Budgeting/Planning is that they are "long term" plans and a company can only 'plan' for the long term as it always lives in the short term and works with its 'fixed' costs.