Variance analysis of budget, Financial Management

Assignment Help:

Variance Analysis:

In its commonest form variance analysis is the process of comparing budgeted financial performance (or financial goals) against actual financial performance.

During the budget process the organisation would have set financial targets for each particular area of revenue or expense.  In the context of project budgeting, the targets are the expenditure limits that were identified during the budget development process.

Against these targets, actual performance is compared and the variance between the two recorded.

By analysing the variance, organisations can quickly see which areas are exceeding expectations, meeting expectations, or failing to meet expectations. Armed with such information, management can take corrective action. In the context of total business performance, variance analysis is generally scheduled to occur at the same time the preparation and communication of profit and loss statement, or cash flow statements, are scheduled. In the context of project budgeting, it is likely that separate variance analysis scheduling will occur and shorter intervals (and depending on the project) to ensure performance against expectations is maintain and avoid the potential for a budget blow out.

An example of a budget variance analysis could be as follows:

Variance Analysis - Relocation Project Sep 200X

J & J Real Estate 

Item Description

Budget ($)

Actual

Variance ($)

Variance (%)

Purchase Price

550,000

700,000

150,000

27.3%

Purchase Costs

30,000

45,000

15,000

50%

Repairs/Fit Out

150,000

80,000

-70,000

-46.6%

Relocation Costs

20,000

10,000

-10,000

-50%

Business Interruption

10,000

0

-10,000

-100%

Marketing Campaign

5,000

1,000

-4,000

-80%

Stationery

5,000

5,000

0

0%

Total

770,000

841,000

71,000

9.2%

The previous example is deliberatly designed as an end of project analysis where all expenditure is compared and variations against budget recorded. In reality, there would be a number of scheduled comparisons throughout the project. The project team would be required to breack total budget down into monthly (or even weekly) levels to enable continuous tracking to take place. In doing so, the organisation can anticipate problems as they arise and take measures to alleviate the impact or reallocate funding accordingly.


Related Discussions:- Variance analysis of budget

What was the value of each person investment, Joe and Sam each invested $20...

Joe and Sam each invested $20,000 in the stock market. Joe's investment increased in value by 5% per year for 10 years. Sam's investment decreased in value by 5% for 5 years and th

Types of investment strategy of hedge funds, Various Types of Strategies ...

Various Types of Strategies Different types of hedge fund strategies are discussed as follows: Relative Value of Strategies: Relative value strategies are also known as no

Find capital allowances and associated tax benefits, Q. Find Capital allowa...

Q. Find Capital allowances and associated tax benefits? It is suitable to use the after-tax cost of borrowing as the discount rate since Doe Ltd is clearly in a tax-paying situ

Describe the walters dividend model, Q. Describe the Walters dividend model...

Q. Describe the Walters dividend model? Walter's Model: - Walter's model maintains the doctrine that the dividend policy is relevant for the value of the firm. As-per to the Wa

Corporate debt instruments, Corporate debt instruments are the financ...

Corporate debt instruments are the financial obligations of a corporation having priority over the claims of the shareholders (equity or preferred) at the time of

Core Concepts, Do you have Textbook solutions for Financial Management Core...

Do you have Textbook solutions for Financial Management Core Concepts Author: Raymond M. Brooks. ISBN 978-0-13-267103-3.

Evaluate earnings per share, This question tested earnings per share and P/...

This question tested earnings per share and P/E ratio. The widely held of the marks were for calculations and a key test was the distinction between what transactions affect basic

Return on equity, Your quantitative analysis will describe the financial st...

Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo

Net present Value, Given below are the cash flows of a project. Find out th...

Given below are the cash flows of a project. Find out the net present value of the project. Cost of capital is 18% and initial investment is Rs. 2,00,000. Year Cash Flows (lakhs)

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd