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Approaches to budgets

Recap of variances

1 Standards are set 2 Actual
based on what is performance
expected to measured
happen

In Paper F5 you
learnt that:

4 Significant 3 Variance analysis
variances compares actual
investigated and results with
appropriate action ‘flexed’ standard
taken

4.1 Recap of planning and operational variances

Traditional variance
calculated can be split into:

Planning variance Operational variance

 Compares original budget  Compares actual result with
with revised budget revised budget

 Not controllable by  Managers can concentrate
managers on the operational matters
for which they are
responsible

There must be a genuine reason for restating the budget

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