ACCT 302 week 10
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Analyzing financial performance reports Chapter 10
This chapter discusses the calculation of variances between the actual business units and the budgeted business units, and how reports of these variances can be used by senior management to evaluate business unit performance. Business unit managers report their financial performance to senior management regularly, usually monthly. The formal report consists of a comparison of actual revenue and costs with budgeted amounts. The difference, or variances, between these two amounts can be analyzed at several levels of detail. This analysis identifies the causes of the variance from budgeted profit and the amount attributable to each cause. Total variances start with at the top, and are divided into revenue and expense variances. Revenue variances are further divided into volume and price variances for the total business unit and for each marketing responsibility center within the unit, they can be further divided by sales area and sales district. Expense variances can be divided between manufacturing expenses and other expenses. Manufacturing variances can be further subdivided by factories and departments within factories. Therefore it is possible to identify each variance with the individual manager who is responsible for it...