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Dear John,
I have a question about budgeting from BPP Revision Kits, Q 15.9 and 15.10.
From what I understand from your lectures, variance is the difference between flexed budget and actual results.
In the BPP revision kit, the question asks about volume variance and expenditure variance, and the answer from the back states that,
“Volume variance is the increase in cost resulting from a change in the volume of capacity, ie, the difference between the original budget and the flexed budget.”
“The expenditure variance is the difference between the flexed budget and the actual results.”
I am a bit confused with these two as I thought variance is the difference between flexed budget and actual results. Could you please help me with this?
Thank you very much 🙂
Although the answers are strictly correct, these two questions are very poor and I would not worry too much about them.
Usually the cost variances are the difference between the actual results and the flexed budget (and they can then individually be analysed into further variances), because changes in the volume will have been dealt with in the sale value variance.
In these two questions, because they make no mention of the level of activity (and are not asking for each individual cost to be analysed separately) then are just asking why the total expenditure is different than the original budget expenditure. The reason is partly because they produced more (the flexed budget) and partly because they spent more (the actual figures).
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