Question

Flexible budgets and variance analysis are very useful tools for managers, but are sometimes difficult to understand. Find an online resource that helps you to better understand using budgets and variances to inform decision making. Provide a link to the resource, and a brief explanation of how this resource has helped you and why you would recommend it to your classmates.

Answer 1

Flexible budgets : These type of budgets are estimates which vary with the volume or output for a given period.

Say for example there may to two type of budgets which flex with two or three scenarios of production volume or output. The scenarios may be:

1. Budget when production is at peak volume, the income and expenses at the highest output.

2. Budget when there is optimum volume, the income and expenses estimated at the optimum utilisation of resources to produce optimum output or suffficient output.

3. Budget when there is low volume or deman is almost nill, the incomes and expenses that will be estimated.

This flexible budget guides management to properly plan their resources and flex with the volume whenever its required depending the change in scenarios. Myaccoutingcourse.com will help us to further investiage into the concepts.

Variance Analysis: The analysis of deviation of variaous cost parameter with the standard set in at the begining of the year resulsts in Variance Analsysis. There are may types of variances which needs analysis and these will be different with the industry type. The below are few common examples of variances.

Sales volume variances, sales mix variances, Material price variances, labour rate variances, machine dependent cost variances, overheads spending variances, Material usage, Material Qty, Material substiution, labour and machine time variances etc... These can be further expained in accouting-simplified.com .

These will help the management to understand practically how accurate the standards set in for a given period of time.