For this assignment, imagine that for the second quarter in a row, profits are down at Waterfall division. Division Management budgeted $250,000 in profits for the 2nd quarter but actual results were...

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For this assignment, imagine that for the second quarter in a row, profits are down at Waterfall division. Division Management budgeted $250,000 in profits for the 2nd quarter but actual results were only $197,000 in profits. The division management insists that the budgets were developed realistically but admits sales were down. The division has been under pressure to improve profitability. Corporate Management has asked you to identify the primary cause of the shortfall – revenue or costs?

Address the following as you develop your answer to Corporate.

  • How will you approach your analysis of the situation?
  • What variance analysis and / or trends would be helpful to evaluate?
  • What are three possible situations that could be the cause for the shortfall in profits?
  • What actions would you recommend for these three possible situations?
  • What recommendations would you make to management to improve the budget process for next year?
Answered Same DayDec 20, 2021

Solution

David answered on Dec 20 2021
3 Votes
Budget Variance Analysis 1
Budget Variance Analysis
For this assignment, imagine that for the second quarter in a row, profits are down at
Waterfall division. Division Management budgeted $250,000 in profits for the 2nd quarter but
actual results were only $197,000 in profits. The division management insists that the budgets
were developed realistically but admits sales were down. The division has been under pressure to
improve profitability. Corporate Management has asked you to identify the primary cause of the
shortfall – revenue or costs?
Address the following as you develop your answer to Corporate. How will you approach
your analysis of the situation? What variance analysis and / or trends would be helpful to
evaluate? What are three possible situations that could be the cause for the shortfall in profits?
What actions would you recommend for these three possible situations? What recommendations
would you make to management to improve the budget process for next year?
Introduction:
In today’s world planning is one of the most important thing which is needed by the
organization to stay ahead. The organization focuses on setting up the goals which rests on the
profitability and growth of the organization. So as to achieve the set goals and targets the
organization needs to focus on strategic planning. The management focuses on executing and
implementing strategic planning on a continuous basis so as to achieve competitive advantage
and the set goals and targets of the organization.
With the proper planning, implementation and execution of planning, the organization is
able to achieve its set goals and targets and attaining a competitive edge from its competitors.
The plans made by the organization are short term as well as long term.
Budget Variance Analysis 2
A budget is a detailed plan, expressed in quantitative terms, that specifies how an
organization will acquire and use resources during a particular period of time. A budgeting
system comprises the procedures used to develop a budget. Budgeting systems have five primary
purposes: planning, facilitating communication and coordination, allocating resources, managing
financial and operational performance, and evaluating performance and providing incentives.
Variance Analysis:
Variance Analysis can be considered as the differences between the actual and standard
prices, costs, quantities and profits etc. A variance is said to be favorable when the actual cost or
quantity is less than the budgeted or standard cost. When the actual input costs or quantities are
more than the standard or the budgeted cost then the variance is said to be unfavorable. The
organizations focus on working as per the plan which helps the organization to have its actual
costs and profit relatively close to the budgeted amounts. But despite of proper planning, there
are times when the company faces high variance in their costs and profits. Managers investigate
these variances to determine their cause, if possible, and take co
ective action when indicated.
An important consideration in deciding when to investigate the causes of a variance is the
manager’s view of the controllability of the cost item. A manager is more likely to investigate a
variance...
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