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Why is the identification of favorable and unfavorable variances so important to a company? How can the identification of the variances help management control costs? Please explain.

As you are considering the flexible budgeting topic of the week, it is important for you to look at this analysis as a significant contribution to the management of the company.  Knowing what the bottom line profit or loss is important.  But what is more important is to understand how your actual results varied in terms of units sold versus how the actual cost of each unit differed from the budget.

Please do watch the video available in this week’s resources

Do you have an example that you can share?  Sometimes that’s the best way to answer the question.