C6: Budgeting and Control | Planning and Operational Variances (ACCA F5)

C6- Planning and Operational Variances

Planning and Operational Variances explains how to calculate a revised budget; identifies the factors that could and could not be allowed to revise an original budget; calculates the cause of various operational variances.

Planning and Operational Variances

a) Calculate a revised budget.

For examples on how to calculate a revised budget, please refer to BPP’s ACCA F5 Performance Management Study Text.

b) Identify and explain those factors that could and could not be allowed to revise an original budget.

Budget revisions should be allowed if “something has happened which is beyond the control of the organization” and which “makes the original budget unsuitable for use in performance management.”

Budgets may be revised for several reasons including changes in:

  • Economic conditions which affect assumptions about the market size
  • The market which affect prices of materials
  • Product specification which changed the amount of material required
  • Labour rates
  • Timelines

c) Calculate, identify the cause of and explain planning and operational variances for:
i) sales, including market size and market share;  ii) materials;  iii) labour, including the effect of the learning curve.

There are several planning and operational variances such as market size and market share variance, materials and labour.

For examples on how to calculate planning and operational variances, please refer to BPP’s ACCA F5 Performance Management Study Text.

d) Explain and discuss the manipulation issues involved in revising budgets.

When revising budgets, there are several manipulation issues that are possible. Budgets may be revised to report favourable variances and to make operating results seem better than they really are. To combat this, the organization should enforce strict rules about revising the budget or standard cost.

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