Task 5 – Identify and address variances to
the budget
Use relevant methods to identify and monitor the causes of variances to your budget. At
least two favourable or adverse variances arising from the operation of the budget must
be identified. Then:
• decide whether to investigate variances using relevant criteria
• demonstrate that appropriate action has been taken to address each variance
Task 5: Identifying and addressing variances to budget
Variance identified: | How it was identified: | Investigated yes/no and why: | Action(s) taken to address variation |
Labour efficiency | By supervising work of labour on a daily basis | No, it was not investigated because drop in labour efficiency is a common occurrence | Labours were given oral warning. They were informed that their salary might be deducted if they further fail to maintain efficiency |
Overhead cost | By calculating overhead cost expenditure once a week | Yes, it was investigated because this condition was leading to reduction of available money for performing budget-related activities | Draft of overhead list was refreshed and further arrangements for extra financing was carried out (Lau, 2015, p.17) |
Sale price | By carrying out benchmark analysis | Yes, it was investigated because it led to reduction of revenue generation | Market analysis of similar products were carried out to decide upon ideal price |
Net profit | By calculating each type of income and expenditure | Yes, it was investigated because it was threatening profit generation | Weekly updating of financial statement was made mandatory |
Staff cost | By reviewing salary structure of staffs | No, it was not investigated because this condition is not of much concern and can be solved easily | Work pressure of staff was reduced and job description was revised. Needless job positions were abolished (Andrijasevic and Sacchetto, 2017, p.62) |