Variance Analysis
In this technical note we explain how to analyze deviations from a budget. We call this procedure variance analysis. The purpose of this analysis is to better understand the sources of variation between the budget and the actual performance of a company. To illustrate the methodology, we use an example of a company in the textile industry. In the second part of the technical note, we explain how to conduct a variance analysis when there is a variation in the volume of finished goods inventory. Finally, we introduce other important concepts in variance analysis such as the flexible budget, absorption costing and production volume variance.
Collection: IESE (España)
Ref: CN-226-E
Format: PDF
Number of pages: 14
Publication Date: Feb 12, 2015
Language: English, Spanish
Review date: Dec 13, 2018
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Description
In this technical note we explain how to analyze deviations from a budget. We call this procedure variance analysis. The purpose of this analysis is to better understand the sources of variation between the budget and the actual performance of a company. To illustrate the methodology, we use an example of a company in the textile industry. In the second part of the technical note, we explain how to conduct a variance analysis when there is a variation in the volume of finished goods inventory. Finally, we introduce other important concepts in variance analysis such as the flexible budget, absorption costing and production volume variance.
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Learning Objective
This technical note can be used in any managerial accounting course to help students analyze variances and to understand the sources of variation between the budget and the actual performance of a company.
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