Chapter 7
Constant Change: Variance Analysis
IN THIS CHAPTER
Comparing static and flexible budgets
Recognizing variances and why they’re important
Using variance analysis to improve financial performance
Analyzing price variances to make decisions about spending
Reviewing efficiency variances to improve productivity
Chapter 6 runs you through setting standard (budgeted) prices and rates in the planning process. You budget at the beginning of the year and then review your actual results at year-end. Don’t be surprised when your actual results are different from your standards. That difference is called a variance.
When you budget, you necessarily make assumptions about total costs and levels of activity (also known as standard costs). Standard costs are based on projected prices and your planned levels of usage. If you manufacture blue jeans, you’ll determine the hourly rate you need to pay workers. You’ll also estimate the total number of hours they will work during the year. No ...
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