Business – 5.5 Budgets – Variances | e-Consult
5.5 Budgets – Variances (1 questions)
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(a) Adverse variance
- Investigate the underlying causes (e.g., higher costs, lower sales, inefficiencies) to determine whether they are controllable or external.
- Implement corrective measures such as cost‑cutting, process improvements, or revised pricing strategies to bring performance back in line with the budget.
- Review and, if necessary, adjust future budgets or standards to reflect realistic expectations.
(b) Favourable variance
- Analyse the reasons for the positive outcome (e.g., cost savings, higher sales, improved productivity) to identify best practices.
- Consider reallocating the surplus to strategic initiatives, such as investment in new projects, staff training, or debt reduction.
- Update budgeting assumptions to incorporate the improved performance, ensuring future targets remain challenging yet achievable.