Question

Josh’s supervisor stopped in his office with his budget all marked up in red. There were several expenses that showed unfavorable variances and his supervisor wanted an explanation! What can Josh do to show that the variances in expenses were due to an increase in sales?

Revenue can remain stable, but variable expenses change due to:

Answer 1

Variances in budgeted figure is a common thing. Budget is made according to the past data (i.e past sales revenue, past variable costs,etc ).
There are various reasons for variance (which can be favourable as well as unfavorable) in the budgeted figures.

In the given case : Josh’s supervisor stopped him in his office with his budget all marked up in red. There were several expenses that showed unfavorable variances and his supervisor wanted an explanation!

Now Josh wants to show that these variances in expenses were due to increase in sales.
Josh can show that the manufacturing of products goods increased which in term affected the budget made earlier assumed at different level of manufacturing.
He can also explain that such manufacturing was increased due to increase in demand of products which was due to increase in sales.

Another point is that revenue can remain stable but variable expenses changes due to : change in rates of raw material, change in rates of labour, etc.