A Variance - occurs when there is a difference between actual figures and budget figures.
Either:
- Positive (favourable) - better than expected
- Negative (Adverse/unfavourable) - worse than expected
'management by exception' - is the name given to the process of focusing on activities that require attention and ignoring those that appear to be running smoothly.
Variances highlight areas in a business that are not in line with its expected performance.
- Causes of favourable variance include costs lower than expected in the budget or sales revenue higher than expected.
- Causes of adeverse variances include costs being higher than expected or sales revenue lower than expected.
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