MGMT 122 Chapter Notes - Chapter 9: Cost Driver
Document Summary
In this chapter, we explain how budgets can be adjusted to help guide actual operations and influence the performance evaluation process. Actual level of activity will never be the same as budgeted activity so the actual expenses will never equal budgeted expenses (cid:1) (cid:1) (cid:1) (cid:1) The variance analysis cycle is used to evaluate and improve performance. The reports highlight variances which are differences between the actual results and what should have occurred according to the budget. Variances raise questions and they are investigated so that their root causes can either be replicated or eliminated. The variance analysis cycle should not be used to assign blame to employees though. Management by exception compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further. This approach allows managers to focus on the most important variances while bypassing trivial discrepancies between the budget and actual results.
