Variance Analysis

The Budget as an Evaluation Tool

Variance Analysis

Your monthly income statement is your report card Income statement will generally compare this years actual number to:
last years actual numbers this years budget numbers WHICH IS MORE IMPORTANT?

Variances
Favorable and Unfavorable variances
Favorable Revenue > Budget Expenses < Budget Unfavorable Revenue < Budget Expenses > Budget

Dollar and percentage variances

Budget Revenue Expense $20,000 Actual $24,000 $ $4,000 % 9.0% 20.0%

$500,000 $545,000 $45,000

Variances
Significance criteria
Dollar and percentages
$25,000 and 10%

For HOTS
Significance criteria are $50,000 and 15% DO NOT explain insignificant variances, you will lose points

Variances
Explanations
Account for the volume variance first REMEMBER THIS IN HOTS! Then explain the variance - where is the additional explanation needed below?
Budget Occ. Room 10,000 Actual 11,000 % variance 10%

Labor exp.
Linen exp. Misc. exp.

$50,000
$5,000 $10,000

$60,000
$5,500 $10,500

20%
10% 5%

Variances

Action
Investigation Must know
Your operation Your accounting system general ledger

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