Management Reporting: Budgeting Control

Budgetary Control and Variance Analysis

WHY COMPARE ACTUAL AND BUDGET?

WHAT CAUSES BUDGET VARIANCES?

• Faulty Arithmetic in the Budget Figures
• Errors in the Arithmetic of the Actual Results
• Reality is Wrong
• Differences between Budget Assumptions and Actual Outcome

HOW ARE VARIANCES CALCULATED

EXAMPLE

FLEXING THE BUDGET

ANALYSING THE VARIANCES

IDENTIFYING THE CAUSES

TAKING APPROPRIATE ACTION

SALES MIX

A HIERARCHY OF VARIANCES