3.5.2 Analysing Budgets

What does a variance indicate in business performance?

• The business is performing either worse or better than expected.

• The business is performing exactly as expected.

• The business is performing worse than expected.

• The business is performing better than expected.

What is a favourable variance?

• When costs are above the cost predictions in the budget.

• When revenue is less than the budget says it’s going to be.

• When revenue is more than the budget says it’s going to be.

• When the expenditure budget for marketing is higher than expected.

What is an adverse variance?

• A variance that increases profits.

• A variance that reduces profits.

• A variance that has no effect on profits.

• A variance that increases costs.

If £10,000 is spent on raw materials in a month when the budget was only £6,000, what is the variance?

• £4,000 favourable variance

• £4,000 adverse variance

• £6,000 adverse variance

• £10,000 favourable variance

What is cumulative variance?

• The sum of all favourable variances.

• The sum of all adverse variances.

• The combined total of all variances.

• The variance for a single month.

Why is it important to spot adverse variances as soon as possible?

• To find out which budget holder is responsible and to take action to fix the problem.

• To ignore them.

• To celebrate the success.

• To increase the budget.

What might a favourable variance indicate about the budget targets?

• The budget targets were too difficult.

• The budget targets were too easy.

• The budget targets were irrelevant.

• The budget targets were accurate.

Which of the following is an external factor that can cause variance?

• Improving efficiency

• Competitor behaviour

• Overestimating the amount of money saved

• Changing the selling price

Which of the following is an internal factor that can cause variance?

• Changes in the economy

• The cost of raw materials

• Competitor behaviour

• Improving efficiency

What does it mean if a business underestimates the cost of making a change to its organization?

• It creates a favourable variance.

• It creates an adverse variance.

• It has no effect on variance.

• It creates a cumulative variance.