Budget Variance Analysis Report for Peyton Company

This report focuses on budget variance analysis and its importance in financial management. It explains the concept of operating budgets and how they are used to forecast revenues and expenses. The report delves into the various types of variances, including material cost variance, labor cost variance, and the distinction between favorable and unfavorable variances. It also discusses the reasons for variances, such as inaccurate budgeting, changes in economic conditions, and employee theft. The report emphasizes the role of variance analysis in identifying the root causes of discrepancies and taking corrective actions. It highlights the importance of variance analysis in the preparation of Master budgets and overall organizational performance.

PEYTON APPROVED BUDGET VARIANCE REPORT
Operating Budget is a detailed statement which shows estimated Incomes and Expenses
of an organization based on the forecasted sales revenue during a given period. It
generally consists of various budgets such as Sales Budget, Purchase Budget, and
Production Budgets etc. A variance analysis is a measurement of variance between actual
cost and the standard cost. Thus Variance analysis can be used to review the performance
of an organization.
A divergence from the predetermined rates, expressed ultimately in money value,
generally used in standard costing and budgetary control system. Variances which are
profitable for the organization are known as Favorable variance whereas variances which
increase the cost for the organization are known as Unfavorable variance. Material cost
variance is the difference between the standard material cost for actual output and actual
cost incurred. Material efficiency variance is the difference between material costs due to
the usage of material. Labor cost variance is the difference between the standard labor
cost for actual hours worked and actual wages paid. Labor efficiency variance is the
difference between actual hours worked by the workers for production of units and the
standard hours required to produce the actual quantity.
The variance may arise due to the inaccurate budgeting, Changes in the economic
realities, and Employment theft. The inaccurate budgeting means due to bad guess of
Income and expenses of the future periods. The change in economic realities refers to the
company is experienced an increase in cost or decrease in revenue due to change in the
market conditions. The Employment theft refers to employees perpetuates theft or fraud
which is difficult to detect and becomes the reason for the variance for the performance
of the company.
Operating Budget is essential for an organization for the preparation of Master budgets.
Variance analysis helps management in the determination of reason for these variance
and corrective action thereon.