Question

1)Briefly describe the planning process. Be sure to include the strategic,operating,and financial plans

2)what is variance analysis

3) explain the relationships amoung the static budget, flexible budget, and actual results

Answer 1

Answer

1.

The planning process is the overall process of preparing for the future. It begins with strategic planning which usually includes mission, scope, and objectives. The operating plan is a road map for the future. Usually five years based on the strategic plan. The financial plan is the part of the operating plan that focuses on the finance function.

Strategic plan- financial plans and budgets are part of the strategic plan. Values. Mission statement. Organizational goals.

Operating plan- provides a road map for executing an organization's strategic plan. The operating plan contains detailed guidance necessary to meet objectives. The "how to"

Financial plan- portion of the operating plan that focuses on the finance function. Focuses on the financial condition, investments, and financing.

2.

Variance analysis:

Variance analysis is the quantitative investigation of the difference between actual and planned behavior. This analysis is used to maintain control over a business. For example, if you budget for sales to be $10,000 and actual sales are $8,000, variance analysis yields a difference of $2,000. Variance analysis is especially effective when you review the amount of a variance on a trend line, so that sudden changes in the variance level from month to month are more readily apparent. Variance analysis also involves the investigation of these differences, so that the outcome is a statement of the difference from expectations, and an interpretation of why the variance occurred. To continue with the example, a complete analysis of the sales variance would be:

"Sales during the month were $2,000 lower than the budget of $10,000. This variance was primarily caused by the loss of ABC customer at the end of the preceding month, which usually buys $1,800 per month from the company. We lost ABC customer because we had several instances of late deliveries to it over the past few months."

This level of detailed variance analysis allows management to understand why fluctuations occur in its business, and what it can do to change the situation.

3.

The relationships among the static budget, flexible budget, and actual results:

The static budget is prepared at the beginning of the planning period and is the starting point for analyses. The flexible budget is based on static budget but is changed to reflect the actual volume realized in the accounting period. Variance analysis examines the differences between the actual results and the static and flexible budgets.