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• Study Notes
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 BabaJide Martins F. 0 0 The first step in the process of variance analysis is to state the amount of variance. For instance, if cleaning is budgeted for \$6000 and you actually pay \$7000 then the variance is \$1000. Cleared!
 Alice B. 0 0 After reading the notes it seems clear but a bit in doubt is there a format that has to be followed to create a balance sheet, profit and loss statement?
 Alice B. 0 0 How can a variance be known if only the actual figure is given and no budgeted one is given, or only the budgeted figure is given and no actual or variance one is given?
 Morne V. 0 0 The following reports include the budgeted figures for Fun Run. You are now provided with the actual figures and are asked to show the variance and state whether it is favourable or not. The first step in the process of variance analysis is to state the amount of variance
 Sunday O. 0 0 A task on variance analysis knowing your cash flow
 Odongo M. 0 0 Accounting -> A task on variance analysis A task on variance analysis The following reports include the budgeted figures for Fun Run. You are now provided with the actual figures and are asked to show the variance and state whether it is favourable or not. The first step in the process of variance analysis is to state the amount of variance. For instance, if cleaning is budgeted for \$6000 and you actually pay \$7000 then the variance is \$1000. The second step is to state whether this is favourable (F) or unfavourable (UF). This process is 'mechanical' in that it does not allow for subjective opinion. An increase in spending on advertising would be regarded as 'unfavourable' yet it may result in a substantial increase in sales. That would be regarded as favourable. The example for cleaning is shown. The third step is to 'explain' why the variation took place. When making this explanation you may have to consider an interrelationship with other items. Often these items are contained in the relevant ledger accounts. Take the case of debtors. The closing balance in the debtors account will be affected by credit sales. An increase in credit sales has the potential to increase the closing balance. However, cash received from debtors, bad debts and discount reduce the debtors closing balance. An increase in discount should encourage debtors to pay more quickly. Improvement in sales may be related to increases in selling expenses such as sales, salaries and advertising. It may also be due to an increase in non-current assets, in particular new premises, motor vehicles or equipment. In fact if certain expenses or non-current assets increase and sales do not respond you have to challenge why that expenditure was undertaken. Learn to think in opposites. The explanation for debtors given above applies in the same way to creditors. Because we are using the perpetual stock approach you must link creditors to stock control. In a similar way cost of sales, which reduces the stock control balance is linked to sales. Sales may increase as a result of more units being sold, or as a result of increased prices. If more units are sold then we would expect an increase in cost of sales. This leads to changes in stock control and creditors (if the stock is bought on credit).
 Saul K. 0 0 what changes does the increase in cost of sales cause to the stock control and creditors?
 Manish K. 0 0 course is understood.
 Manish K. 0 0 information is clear.
 Penelope M. 0 0 it's just a matter of budgeting.
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