Anushka Dsilva – 40121289
Unit 2: M4D3
Variance – in business terms, a variance is the difference between the value of the
budgeted figure and the actual figure. A particular variance could be easily calculated by
subtracting its planned value from its actual value.
Now, as I’ve said in my P6, variances can be Favourable or Adverse. A favourable
variance occurs when a business’s real revenue turns out to be greater than its budgeted
revenue, or also when the business’s real expenses appear to be lower than its budgeted
expenses. Furthermore, it saves cash for the business in either way and hence is denoted by
an ‘F’ which stands for favourable. While on the other hand, if the actual revenue appears to
be less than the business’s budgeted revenue, or if the actual costs turn out to be lower than
its expected costs, the business is believed to have an adverse variance as it will experience
wastage and loss of cash, production and other material in the business. An adverse variance
will be denoted with an ‘A’. In my task, I will explain why a business like Jute Fashions Ltd
should set up budget and the issues it can face due to unmonitored costs and budgets.
Let’s consider the report of budgeted and actual income and costs for Jute Fashions Ltd to
know more about the different types of variances and their possible reasons for being either
favourable or adverse. The first type of variance we’ll be looking at is the income or sales
revenue variance for Jute Fashions Ltd. The total income that was prepared by the
business is £280,000 while the actual total income turns out to be £275,000 i.e. £5,000
(280,000 – 275,000 = 5,000) less than its projected figure. So the income variance for Jute
Fashions is £5,000 A. This variance will be adverse as the sales revenue has turned out
£5,000 less than expected. Further on making a loss for the company. Possible reasons why
the business failed to produce the total budgeted income could be: their failure to charge
higher prices – if a particular product is making a good sale, the business is likely to charge
an increased price of at least 50p over that product. This is in order for the business to help
increase its profit. While at Jute Fashions, they might have failed to do so, and hence,
contributed to the loss of £5000. A decrease in demand for their products; People might have
not been needing the products and services Jute Fashions sold, or maybe the business failed
to prove themselves to its target market as a consequence they lost customers due to lower
demand. Jute Fashions should have advertised its products and services in way their business
stood out and told its target market what they and their products/services could offer and how
it’s going to benefit them; it is very much possible that Jute Fashions might have lost a
number of customers due to its poor quality of products and services. Once a customer gets
upset and dissatisfied by his experience over certain products or the service he received while
being at the or business, it’s pretty much expected for the business to lose that customer;
decrease in consumer incomes or the business failing to adapt the changing tastes of its
consumers. We, as customers and even as normal beings have different tastes or likes and
dislikes, which gradually but eventually keep changing. If businesses like Jute Fashions fail
to do appropriate and regular research over people’s changing current likes and dislikes, they
will end up manufacturing wrong products and services which will then result in low or no
sale. Moreover, I personally think that their idea of Jute Fashions is really good but the
business should focus more on the current trends and fashion. For example, designing or
sewing attractive and beautiful flowers, using slogans like “this bag saves the Mother Earth”
over the Jute bags. Producing home décor and handicraft products, with special consideration
Unit 2: M4D3
Variance – in business terms, a variance is the difference between the value of the
budgeted figure and the actual figure. A particular variance could be easily calculated by
subtracting its planned value from its actual value.
Now, as I’ve said in my P6, variances can be Favourable or Adverse. A favourable
variance occurs when a business’s real revenue turns out to be greater than its budgeted
revenue, or also when the business’s real expenses appear to be lower than its budgeted
expenses. Furthermore, it saves cash for the business in either way and hence is denoted by
an ‘F’ which stands for favourable. While on the other hand, if the actual revenue appears to
be less than the business’s budgeted revenue, or if the actual costs turn out to be lower than
its expected costs, the business is believed to have an adverse variance as it will experience
wastage and loss of cash, production and other material in the business. An adverse variance
will be denoted with an ‘A’. In my task, I will explain why a business like Jute Fashions Ltd
should set up budget and the issues it can face due to unmonitored costs and budgets.
Let’s consider the report of budgeted and actual income and costs for Jute Fashions Ltd to
know more about the different types of variances and their possible reasons for being either
favourable or adverse. The first type of variance we’ll be looking at is the income or sales
revenue variance for Jute Fashions Ltd. The total income that was prepared by the
business is £280,000 while the actual total income turns out to be £275,000 i.e. £5,000
(280,000 – 275,000 = 5,000) less than its projected figure. So the income variance for Jute
Fashions is £5,000 A. This variance will be adverse as the sales revenue has turned out
£5,000 less than expected. Further on making a loss for the company. Possible reasons why
the business failed to produce the total budgeted income could be: their failure to charge
higher prices – if a particular product is making a good sale, the business is likely to charge
an increased price of at least 50p over that product. This is in order for the business to help
increase its profit. While at Jute Fashions, they might have failed to do so, and hence,
contributed to the loss of £5000. A decrease in demand for their products; People might have
not been needing the products and services Jute Fashions sold, or maybe the business failed
to prove themselves to its target market as a consequence they lost customers due to lower
demand. Jute Fashions should have advertised its products and services in way their business
stood out and told its target market what they and their products/services could offer and how
it’s going to benefit them; it is very much possible that Jute Fashions might have lost a
number of customers due to its poor quality of products and services. Once a customer gets
upset and dissatisfied by his experience over certain products or the service he received while
being at the or business, it’s pretty much expected for the business to lose that customer;
decrease in consumer incomes or the business failing to adapt the changing tastes of its
consumers. We, as customers and even as normal beings have different tastes or likes and
dislikes, which gradually but eventually keep changing. If businesses like Jute Fashions fail
to do appropriate and regular research over people’s changing current likes and dislikes, they
will end up manufacturing wrong products and services which will then result in low or no
sale. Moreover, I personally think that their idea of Jute Fashions is really good but the
business should focus more on the current trends and fashion. For example, designing or
sewing attractive and beautiful flowers, using slogans like “this bag saves the Mother Earth”
over the Jute bags. Producing home décor and handicraft products, with special consideration
