HOMEWORK 6 - Personal Statement Example

Favorable, and unfavorable variances in accounting: Identification of favorable and unfavorable variances does play a crucial role in the overall growth and performance of a company. To start with, I would try and simply define to you what budget reporting entails and how it is crucial to these types of variances. Typically speaking, a budget report can portray the real outcome when comparisons can be made to the numbers supposed to be budgeted. It can be composed of columns for the real amounts being budgeted, and their differences, or what would be termed as variances that do occur between these two amounts.

It can hence be noted that a variance may hence be considered as unfavorable or on the contrary be favorable. Viewing a prepared income statement budget report, one visualizes how the variance does affect the overall net income of that company. Hence one can hence make deductions on whether they are favorable or unfavorable. This occurs when actual net overall income is less than the expected then the variance would be considered to be unfavorable. Hence, higher revenues can cause a favorable variance.

Nonetheless, extreme higher costs and expenses do result in causing an unfavorable form of variance in a company (Richards, 1995). Sales variances can be considered to be favorable when the real sales can be seen as greater than the expected or what would be termed as the targeted sales. They can be unfavorable when the expected sales are lower than the targeted sales. Cost variances are favorable when real costs happen to be lower than the targeted costs. In many a times at the production level, sales of a company may be affected.

Lower control in the quality of the production process may result to sub-standard quality of the goods. This ultimately would translate to poor sales for the company hence making lower levels of expected income. Things involving delays in the production process could also affect the products being readily available in the market and hence deter volume of sales. Failures which happen to arise in the production department subjected in satisfying specifications of customers also inhibit sales. Hence, it can be observed that considerate investigation and thorough research on the importance of these sales volume variances can translate to identifying those responsible for the overall dismal sales performance for the company (Richards, 1995).

Furthermore, the company has to use such vital information so as to manage the various anticipated costs to be incurred. For instance, to determine volume variances, one needs to compare a static budget based on targeted volume to a flexible budget based on actual volume. In this case scenario, when the actual volume is more, variable costs can be planned to be greater under the flexible budget. Variable costs tend to rise proportionately with increases in the volume. Since revenues from sales can also increase proportionately with increases in volume, the rise in costs can be offset by a corresponding rise in volume (Richards, 1995).

Hence, this translates to a higher contribution margin. Unfavorable variable cost volume variances must not be perceived as dismal performance until there happens to be a significant contribution margin.ReferencesRichards, T. (1995). Management accounting in the financial world. London: Oxford press.