Acc 202 Budget Variance Report Submission

ACC 202: Final Project Part I Budget Variance Report Submission

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Southern New Hampshire University

        Operating budgets are necessary because these budgets are used to state the wealth of the organization, as well as help provide analysis of the firm’s working capital. Operating budgets also help management run the organization efficiently by helping in the planning and coordination for production. Through variance analysis management can focus on investigating any of the variances found to be significatnt. (Miller-Nobles, Mattison, & Matsumura, 2016)

A budget variance is the difference between the budgeted or the baseline amount of expence or revenue, and the actual amount reported. A favorable budget variance is reported when the actual revenue is higher than that which was budgeted, or when the actual expence is less than the budgeted amount. One example of a budget variance would be that Payton Approved Budget Variance Report shows budgeted $212,195 for direct materials while actually spending $240,250 on direct materials. This resulted in an unfavorable variance of $28,055. This flaw in budgeting is something management would want to investigate to justify the unexpected direct materials needed.

Investigating variances is a criticle when using variance analysis as part of performance management. A standard is an average expected cost and therefore small variations between the actual and the standard are bound to occur. These small variations are uncontrollable variances and should not be investigated. Management may decide to only investigate variances above a certain amount. For example, the budget may be unreliabale or unrealistic. These variances would be considered uncontrollable and may call for a change in the budget or an improvement to the budgeting process, not an investigation of the variance reported. When focusing on direct material costs the investigation would want to focus on areas such as purchasing to ensure quality wasn’t compromised when costs were lower than expected or to ensure these costs will be availbale going forward, that this wasn’t just a one time offering. When looking at direct material efficiency, production would be the focus of investigations. Manager would want to look into why more manterials were being used, could there have been a problem with quality? With direct labor costs management may want to look into HR for answering questions like why were the employees being paid more than expected? Direct labor efficiency investigations may raise questions for production such as asking how the workers were able to produce batches faster than expected? Was this achieved through better training or experience? Can this level of production be expected going forward?

It is through these investigations that management can better learn why there were variences in the budget and what they can expect going forward which should result in better budget planning in the future. (Miller-Nobles, Mattison, & Matsumura, 2016)

Conclusion

        According to Payton Planning’s budget variance report, there are some investigations needed in both direct materials and direct labor. While costs were favorable meaning the parts did not cost as much as expected and labor was cheaper than expected, efficiency in both direct labor and direct materials are unfavorable. With both areas, production should be the focus as time spent producing goods and the amount of material required for the good produced are found to be higher than what was budgeted by management.