Budget variances

           First, let’s talk about what a budget variance is. It is a term that we use to describe the situation when the actual costs differ from the standard (and planned) ones. The budget variance can be favorable (when there are gains, and the difference is positive) and unfavorable (when there are losses, and the difference is negative). Such variances occur because of different factors, including errors, wrong expectations, increased costs, and many other external and internal reasons (Chen, 2020).

           It is important to identify what causes budget variances because it can help to prepare the future budget next time. According to Siegal & Yacht (2009), causes of budget variances include quantity, price, different micro and macro factors, elasticity, economic cycles, family, and many others. Therefore, when planning our budget, we need to monitor the situation as a whole. For example, products and services tend to increase or decrease in cost, they do not usually remain the same. Taxes, inflation, or deflation, also affect the budget. Some external factors are sometimes unpredictable and are not under our control, but it is also better to be prepared for them. An example of an uncontrollable change in prices can be a cold summer when people do not really want to buy ice cream because of the weather and low temperature. The owner of this shop will sell fewer products, and he or she cannot do anything with the weather, but good planning and organization can help to meet these difficulties better (Wollacott, n.d.).

Word count: 251 words.

References

Siegal, R. & Yacht, C. (2009). Personal Finance. Saylor Foundation. Licensed under Creative Commons CC BY-NC-SA 3.0. Retrieved from

http://my.uopeople.edu/pluginfile.php/57436/mod_book/chapter/37371/BUS2204.Textbook.pdf

Chen J. (November 30, 2020). Budget Variance. Retrieved from https://www.investopedia.com/terms/b/budget-variance.asp

Wollacott M. (n.d.). What are common causes of budget variance? Retrieved from https://www.smartcapitalmind.com/what-are-common-causes-of-budget-variance.htm