Question

Continuing as a consultant explain to your the importance of budgeting and variance analysis to their organization. Limit you discussion to :

(a) Master budget

   (b) Static and Flexible budget

(c) Variances - Price variance and Efficiency variance

Answer 1

Importance of budgeting in terms of as follows:

1. Master budget: Master budget is nothing but the summary of company’s plans regarding sales, financing activities etc. Master budget is an essential part of coordinating efforts, which takes in to consideration assessment of budgeted sales with anticipated sales.
2. Static and flexible budget: Variable expenses in flexible budgets are usually defined as percentages of sales. For example, if sales were to increase, flexible budgets would be adjusted to increase spending on materials to take even more advantage of unexpected increases in revenues.
3. Prince variance and efficiency variance : An efficiency variance is nothing but the difference between actual and budgeted quantities .

Efficiency variance = (Actual quantity – budgeted quantity) × (standard price)

Which gives the clear picture of expenses which has reduced, so that one can know benefit of their part.

I hope this will help you.