Question

Why are the variances from budgets and forecasts important to know? Discuss in 100–120 word

Answer 1

Variance from budgets and forecasts are important to know in order to utilise the resources in optimum manner because of the difference of actual and budget is know as variances and management would like to take remedial action against unfavourable variance such remedial action will reduce the variances for the next period or variances are considered material, they will be investigated to determine the cause .Effective variance analysis can help a company spot trends, issues, opportunities and threats to short-term or long-term success.Through better planning, monitoring, evaluating and controlling, business owners can improve their processes after analyzing the budget.

In short we can say:-

1. Variance analysis helps in taking remedial action so that such variances ca be avoided in future.

2. It helps the management in future forecasting and budgeting.

3. It helps the management in evaluating the performances of the organisation through analysing whether the targets set are achieved or not via variances.

4. Variances analysis helps the management in optimum utilization of resources.