Professional Documents
Culture Documents
Objectives
Variance analysis
Variance analysis investigates differences (variances)
between planned and actual results. It helps managers:
prepare budgets for the coming year,
control results in the current year, and
evaluate the performance of operating units (not to blame).
An example
The budgeted and actual costs and the resulting month and Y-TD variances for the Hospital for Ordinary Surgery illustrate an
unfavorable cost variance.
This Month
Actual
$2,200,000
Budget
$1,800,000
Variance
$400,000 U
This Year
Actual
$25,476,000
Budget
$25,150,000
Variance
$326,000 U
Causes of variance
For variance analysis to be an effective tool, managers must understand the causes of variances
Quality
Technology
Efficiency
Policy
Standards
Price
Volume
Staff availability
Acuity
Budget
Variance
Radiology
800,000
600,000
200,000 U
Pharmacy
500,000
410,000
90,000 U
General Surgery
900,000
790,000
110,000 U
2,200,000
1,800,000
400,000 U
Total
Department of
Radiology
Salary
Supplies
Total
Actual
Budget
Variance
400,000
395,000
5,000 U
400,000
205,000
195,000 U
800,000
600,000
200,000 U
Problems
Fails to take into account the impact of volume changes
on costs (obviously items that are variable costs)
Does not provide direction for further investigation of
variances
QUANTITY
PRICE/RATE