MGMT 122 Lecture Notes - Lecture 12: Information System, Contribution Margin, High High
Document Summary
You will never accurately follow your budget because it is about the future and thus impossible to be correct. Variances are simply differences between what you expected to happen (in the budget) in an accounting period and what actually happened (in the accounting reports) After the accounting period is over, we need to learn what went well and what went poorly. We can use the original budget as a baseline. We want to know exactly what we have been doing well and what we have been doing badly. By comparing actual results to budget, we can identify potential problems to investigate- ie it doesn"t tell us exact things, it gives us a starting point for what to look further into. We refer to the differences in the two reports as variances. Variances that boost profit are called favorable and those that reduce profit, unfavorable.
