The Operating Budget And Variance Analysis For Peyton Approved

753 Words Apr 5th, 2016 4 Pages
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 process helps to limit the amount of time the company will spend creating and managing capital resources (Vitez). Budgets help companies to limit how much money will be spent on certain operations. Without these budgets a company could end up spending more money than intended, which could cause loss in profits for the company. The direct labor variance lets us know the labor cost of employees who convert raw materials into finished products (Nobles, 2014). The direct labor price variance for Peyton Approved was 33,000,…

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