W7D2

This week, you were asked to access a number of videos and websites. These are great resources to help you learn the materials this week. Consider what type of resource you find most helpful in learning new materials (videos, examples, text, etc). Then consider which topic you struggled with the most this week. Complete an online search for a new resource that will help you with that topic. For example, if you learn best from videos and you struggled with the topic double entry accounting, then complete an online search for “double entry accounting videos”. If you learn best by examples, search for “double entry accounting examples”. Select one of the items you find in your search that you found particularly helpful in learning the topic you struggled with the most and post a summary of the resource and a link to the resource.

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Steven Pelkey          

Hello

This week was really challenging this week I ran into Flexible Budgets, I think the main thing I has trouble with is I think the idea it is based off of a formula that really had me up for hours trying to figure out is it a percentage of sales that occurs on the amount of activity or revenues that are sold.

As usual I had to use my old friend google and look to see if I had the right idea when looking into ideas just to see if I was looking or reading paragraph correctly sometimes I have the trouble of reading into things too far or too much but when I was looking into problem my ideas were not adding up so I looked further. What I was able to find please see below.

https://www.accountingtools.com/articles/what-is-a-flexible-budget-variance.html

Chad Watkins          

This week my goal was to further my understanding of cost variance.  Investopedia offered some excellent references that did a great job explaining the principles of cost variance and the impact on the budget.

The textbook explains that when actual results are compared to the flexible budget, revenue and spending variances are the result (Noreen, 2017).  This can result in both favorable and unfavorable results.  Revenue variance is favorable when revenue exceeds what was expected, and unfavorable when the level of activity results in a lower than expected revenue.  Spending variance is favorable when the cost was less than expected, and unfavorable when the cost is greater than expected based on the given activity level.  The article better summarized as a favorable budget variance refers to positive variances or gains; an unfavorable budget variance describes negative variance, meaning losses and shortfalls (Chen, 2019).  Simply stated, budget variances occur because forecasters are unable to predict the future costs and revenue with complete accuracy.

The article explains there are three primary causes of budget variance: errors, changing business conditions and unmet expectations (Chen, 2019). Ad data.  Changing business conditions result in variance during times of economic or political change.  Trade agreements and raw materials limitations are other variables that can introduce great variance.  Additionally, changing business conditions can be secondary to new market competition.   Management teams are also likely to implement budget variances does not meet expectations or underperforms.

Additionally, variance has the potential to play a dominant role in an organization with a flexible budget.  Flexible budgets allow room for variance because it is difficult to accurately predict market costs and outcomes.  This allows an organization to be adaptive to a changing market and economy.  An organization with a static budget is less subjective to variance.  Static budgets tend to remain the same even if assumptions change (Chen, 2019).  The static budget will not introduce variance in the level of production because it will remain constant.  Therefore, variances have less of an impact.

References:

Chen, J., Budget Variance, Investopedia. Retrieved from: https://www.investopedia.com/terms/b/budget-variance.asp

Noreen, E. (2017). Managerial Accounting for Managers (4th Edition). Mcgraw-Hill Education.