What is a ‘budget targets’
The budget variance is a periodic measure used by governments, corporations or individuals to assess the difference between planned and actual figures for a particular category of accounting. Favorable budget performance refers to the positive difference or gains; an unfavorable budget performance shows a negative variance, meaning losses and failures. Budget variances occur because forecasters are unable to predict the future with absolute precision.
Budget deviations can occur from controlled or uncontrolled factors. For example, a poorly planned budget and the labor costs are manageable factors. Uncontrollable factors are often external and arise from the phenomena outside the company, such as a natural disaster.
Breaking down the ‘fiscal indicators’
The reasons for the budget
There are three main causes of budget deviation: errors, changes in the business environment and expectations. Mistakes the creators may occur when the budget is prepared. There are a number of reasons for this, including faulty math using incorrect assumptions and relying on outdated or corrupt data. Changing business conditions, including changes in the economy as a whole, may cause the budget. There may be a change in the cost of raw materials or a new competitor can suddenly create price pressure. Policy and regulatory changes that were not an accurate prediction are also included. The budget to occur when control is greater than or worse than expected.
The deviation should be noted as favorable or unfavorable. Favorable variance is when revenues are more than budgeted expenditures lower than projected. The result can be more income than originally forecast. Conversely, an adverse variance arises when the company does not hold the budget or the costs will be higher than predicted. Therefore, net income may be lower than what management originally expected.
If the deviations are not considered significant, they will be investigated to determine the cause. Then the management will be tasked with, to see if he can fix the situation. The material definition is subjective and different depending on the company and the relative size of the deviations. However, if the material dispersion is stored for a long period of time, management must assess its budgeting process.
Flexible and static budget
Flexible budgeting allows you to change when assumptions used to develop the budget will be changed. A static budget remains unchanged even if the assumptions change. The flexible budget provides increased adaptability to changing circumstances. For example, suppose that production is to reduce variable costs will also be lower. When the flexible budget, it is reflected, and the results can be assessed at this lower level of production. Under a static budget, the initial level of production remains unchanged, and as a result the difference is not so significant.