Introduction to Variance Analysis in Business Budgeting

The video tutorial explains variance analysis, focusing on the difference between budgeted and actual figures. It covers favorable and adverse variances, providing examples to illustrate these concepts. The tutorial also discusses reasons for variances, such as poor budgeting or external shocks, and offers strategies for managing them in both small and large businesses. The video concludes with a summary of variance analysis.

What is the term used to describe a situation where actual results are better than budgeted expectations?

• Neutral variance

• Favorable variance

• Adverse variance

• Unexpected variance

Which of the following is an example of an adverse variance?

• Higher costs than budgeted

• Improved productivity

• Higher revenues than expected

• Lower costs than budgeted

What could be a reason for a favorable variance in a company's budget?

• Increased quality of production

• Poor budgeting

• Higher than expected tax rates

• Unforeseen economic recession

How might a company respond to an adverse variance caused by external shocks?

• Ignore the variance

• Blame the employees

• Increase spending in all areas

• Assess the severity and adjust strategies

What is a potential reaction of a large business to a favorable variance?

• Ignore the variance

• Invest in research and development

• Cut marketing budget

• Lay off employees

In the context of variance analysis, what might a small business do with the extra funds from a favorable variance?

• Distribute it as bonuses

• Invest in business growth

• Save it for future losses

• Spend it on non-essential items

What is a key difference in how small and large businesses might handle adverse variances?

• Small businesses assess severity and adjust

• Large businesses always cut costs

• Large businesses never hold anyone accountable

• Small businesses ignore them