Question

. A budget variance occurs when we anticipate that an expense/revenue will be one amount, but then the actual happens and comes in at another amount. The difference is a variance and it can be favorable or unfavorable.

Think about a book, TV show, movie, sports event, etc. What did you anticipate would happen? What actually happened? Was the difference favorable or unfavorable, why?

As my example, consider Jack and Jill who went to go get a pail of water. The anticipation is that they will come back with the water. But instead, Jack falls and cracks his skull and then Jill falls too. I see this as an unfavorable variance for water acquisition, since no water was delivered, and an unfavorable variance for medical expense since Jack needed surgery on his head, and then maybe an unfavorable variance on cleaning expense since Jill tumbling down the hill probably made her clothes pretty dirty.

Let's come up with three variances from the example you chose. For your responses to other student posts, either suggest another variance example, or discuss the current variance example. So may be you think that it was dangerous to go up the hill in the first place so we should have budgeted for medical expense from the start. Or, perhaps you think there will be a favorable variance for insurance revenue from a lawsuit since the hill was definitely not safe and proper warning signals should have been posted.

Answer 1

Solution

Budget Variance explained with few instances from the detective story (book/ movie) , Sherlock Holmes and the Hound of the Baskervilles.

In the story, everybody believes that the murders and several other incidents happening in the mansion named ' Baskerville Hall' are due to the supernatural powers haunting the place. Therefore people were of the opinion that the mysteries can never be solved. But, Sherlock Holmes accepts the case and successfully solves the mystery. Mr. Stapleton, one of the heirs of the Baskerville family, created a monstrous hound and used it for murdering people in the family. He wanted to enjoy the wealth and properties of the family all by himself. He was caught before he killed the last heir (Mr. Henry) of the Baskerville family thereby protecting his wealth and property.

Mr. Stapleton anticipated earning all the wealth of the family by murdering all the other heirs of the family. He must have thought that nobody would take up the case if he made people believe that the place was haunted. For this he had to spend a lot on the hound to make it look monstrous. But, Sherlock Holmes takes up the case and starts with his investigations. Therefore, Mr. Stapleton had to incur additional expenses (for example, travelling to London & following Holmes all day long in different attire) in order to find out the plans of Mr. Holmes and to create diversions and distractions in the case. This may be considered as unfavourable variance on expenses that Mr. Stapleton has budgeted to execute his plans.

Since the case was filled with superstitions and supernatural incidents, Mr. Henry (last heir) had no certainty that he would live to enjoy the wealth of the family. But, the mystery was solved and Mr. Henry got all the wealth and property of the family. This inflow of immense wealth could be considered as a favorable variance.

The case was considered to remain unsolved due to its nature. Thus, Mr. Holmes would have anticipated that he would have to spend a lot in order to collect evidences as the case was a complicated one. He must have expected the expenses incurred in investigating the case to exceed the revenue generated as it was highly possible for the case to remain unsolved and go inactive. But, since the case was successfully solved, it is certain that he would have made profits. This revenue could be considered as a favourable variance.