Having a budget is critical for the financial stability of an organization. Keeping track of how well the organization is actually adhering to the budget, and subsequent identification of why the budget numbers are being missed is equally important. Without this critical “why” piece, it is difficult to make the necessary adjustments to the budget or to organizational behavior that might be promoting overspending.
A good budget is built with thoughtful consideration of future costs and revenue. Though your budget is formulated with expected figures in mind, the actual resulting values may vary considerably. This variance–from projected to actual–can be a pleasant surprise or a fiscal nightmare and can make financial decision making difficult. Fortunately, variance analysis can enable management to determine why variance occurred and what can be done to mitigate its effects.
Note: For those Assignments in this course that require you to perform calculations you must:
- Use the Excel spreadsheet template for the Week 8 assignment
- Show all your calculations and formulas in the spreadsheet.
- Answer any questions included with the problems (as text in the Excel spreadsheet).
Salary Variance Scenario
For this Assignment run a variance analysis. Based on the information you obtain: assess the results of the analysis, suggest potential causes of the budget variances and an explanation for addressing the situation.
Using the following performance data calculate the volume adjusted labor rate variance and volume adjusted efficiency variance. Your Variable Expense Factor is 40% and your Volume Change Factor is 50%.
Note: Submit the Excel spreadsheet containing your Salary Variance Scenario calculations to the Assignment submission link.
Variance Analysis
Name: Assignment: A good budget is built with thoughtful consideration of future costs and revenue. Though your budget is formulated with expected figures in mind, the actual resulting values may vary considerably. This variance–from projected to actual–can be a pleasant surprise or a fiscal nightmare and can make financial decision making difficult. Fortunately, variance analysis can enable management to determine why variance occurred and what can be done to mitigate its effects. Using the following performance data, calculate the volume adjusted labor rate variance and volume adjusted efficiency variance. Your Variable Expense Factor is 40% and your Volume Change Factor is 50% Actual Budget Salaries 345,000 413,000 Payroll Hours 11,000 9,500 Service Volume 75,000 150,000 Actual Budget . Salaries 345,000 413,000 Payroll Hours 11,000 9,500 Service Volume 75,000 150,000 Actual Volume 75,000 Budget Volume 150,000 Variable Expense Factor 40% Volume Change Factor -50% Volume Adjustment Factor -20% Description Actual Budget Variance (Unfavorable) Salaries 345,000 413,000 68,000 Volume Adjustment Volume Adjusted Salaries Paid Hours Volume Adjustment Volume Adjusted Hours Labor Rate Labor Rate Variance $0.00 Efficiency Variance $0.00 Total Variance $0 For this Assignment, run a variance analysis. Based on the information you obtain,assess the results of the analysis, suggest potential causes of the budget variances and an explanation for addressing the situation.