Compare And Contrast The Operating Budget And Variance Analysis

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In this paper, we will discuss the operating budget and variance analysis for Peyton Approved, which is a manufacturer of pet supplies. The operating budget is a combination of known expenses, expected future costs, and forecasted income over the course of a year (Bradford). Operating budgets are focused on facilitating income. Operating budgets include: sales and collections budget, cost of goods sold budget, the inventory and purchasing budget, and the budget for operating expenses (Bradford). On the other hand, variance analysis is the difference between an actual amount and the budgeted amount. This can be labeled as favorable if it increases the operating income and unfavorable if it decreases the operating income.
Budgets represent a detail breakdown of how a company is expecting to spend its money in the upcoming year. Budgets are usually created on a yearly basis in order to carefully outline the anticipated needs of the business. Annual budget
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However, for Peyton Approved it would be important to compare what was predicted against the actuals to determine in which direction the company is headed. Labor and material use should be investigated for Peyton Approved to determine the cause for the variances. Some things that can be investigated are changes in conditions, the quality of management or unreal budgeting. Furthermore, unfavorable variances could have increased as a result of management carelessness. If the management pays special attention, then reduce costs can result in favorable variance (Holtzman). In addition, budgeting unrealistically could cause negative variances. Probable reasons behind unfavorable variances can include the fact that Peyton could have hired unskilled or untrained workers, which would reduce the prices. Material waste could possibly result in equipment malfunction or lack of

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