Budget Variance Analysis Paper

Financial resources or sources of income are limited but the items one need to survive unlimited. This creates a discrepancy that obliges an individual to make choices as to which need is urgent. Thus, planning how you will manage your money is important. Personal finance management starts from the basic facts of an individual understanding and identifying accounting information relating to the provision of basic needs as outline in the income statement, cashflow statement and balance sheet. Living a more comfortable life goes beyond meeting basic need thus the need for budgeting. A budget, “according to Siegal and Yacht (2009), is a projection of a financial requirement and the consequences of the plan” (p,89). In other words, a budget if

The reason that our needs are unlimited and income limited make financial constraint a major impediment for financial forecasting accuracy creating variances of a budget amount. This paper we shall look at budget variance, the cause, and type of variances that can occur.

Variance is part of the budget process which involves monitoring the outcome of the forecast. A budget variance is thus the difference between that actual result of a financial activity and the expected budgeted result (Siegal and Yacht, 2009, p. 42). This variance can either be a favorable budget variance or an unfavorable budget variance which can be due to controllable or uncontrollable factors (Investopedia.com). For instance, a favorable variance is a gain-when there is a budget surplus while an unfavorable variance is a loss-when there is a budget deficit. The outcome is not accidental but is due to errors, changing business conditions-micro and macro factors, and unmet expectations. For example, the current budget of Cameroon has just witnessed an unfavorable budget Variance which can be attributed to human error. After the fall in oil prices, I cannot understand why the Government to sign a trade treaty with the European Union for member countries to export heavy duty