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In: Accounting

What is the purpose of budget performance reports? How are budget variances calculated? Which budget variances...

What is the purpose of budget performance reports? How are budget variances calculated? Which budget variances are the most important? How will variances help management assess performance?

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Expert Solution

Budget performance reports are the specific reporting by the management of the company towards the variances in the performance of the company as per the comparison of the actual against the pre-determined budgets.

The budget figures are put towards the hardest side of comparative statement and variances are calculated by comparison with the actual performance. Actual revenues and gains being higher means positive variance or performance whereas actual being lower to budgeted figures means negative variance or performance.

The revenue and costs variances like sales, material, labor and overheads are the most important variances in various forms of variances because other costs are the almost fixed in nature.

The performance report displays the all financial and non-financial variances of the actual against the budgets. The management assesses the performance through the differences or variances of revenues and costs. The management have to concentrate on the negative variances to optimise the company's performance. The reports also discloses the non-financial issues which cause the budgets to drop outside the allowable ranges of the budgets like inferior resources or shortage of workers in production.

ekkarill92 answered 1 year ago
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