Question

Tim, a business owner with about $100,000 in annual sales and $5,000 net profit last year, notices some variances (see below) when comparing his actual annual numbers to budgeted numbers this year. Analyze these variances and comment on what likely happened over the past year. Also, make recommendations on what Tim should do with budgeting and operations next year.

Sales $880 unfavourable

Cost of Goods Sold                       $760 favourable

Variable selling expenses             $280 favourable

Fixed selling expenses                  $200 favourable

Fixed administrative expenses $600 favourable

Answer 1

1) sales unfavourable - it means the sales reveneue has been decrase as compared to budget so iit should take necessary step to achived budgedt sales etiher by providign good qqultiy of product or reducing the price etc

2) COGS, it means the acutal cost ils less as compared to budget which shows that companty is pefromng the busines process very effectively and effiecetnly and there fore they are able to reduce teh cogs below bdugedt figure

3) varible seeling exp- it means acutally sellligexp are less as compared to budegt selling exp which is good sign it relfeccts the marketing dept is doing their work effrectlvy and efficenty

4) fixed selling exp= it means actual exp is less than budget exp due to various measeure taken by co that markeing dept is performing effecdtiy and efficnetly

5) fixed admisitration exp -it measn acutaly exp is les than budget that means the administraition dept is workign effectively and efficenty to run the administration work due to which they are able to reduce the exp and thus increasinhg the profit of compnay