Real-Life Math -- Solution
You need to do a variance analysis for each month. Here is the formula
you will use:
Variance analysis = [(expected costs / budget) -
1] x 100
You know that your monthly budget is $45,000. You need
to know what your expected costs are. Here's how you figure that out:
Expected
costs = (expenditure to date) + (committed funds) + (planned future expenses)
So
here's what your analysis would look like:
Month 1
Budget
= $45,000
Expected costs = $10,000 + $35,000
Expected
costs = $45,000
Variance = ($45,000 / $45,000 - 1) x 100
Variance
= (1 - 1) x 100
Variance = 0 percent
Month
2
Budget = $45,000
Expected costs = $10,000
+ $15,000 + $12,000
Expected costs = $37,000
Variance
= ($37,000 / $45,000 - 1) x 100
Variance = (0.82 - 1) x 100
Variance
= -0.18 x 100
Variance = -18 percent
Month
3
Budget = $45,000
Expected costs = $25,000
+ $15,000 + $12,000
Expected costs = $52,000
Variance
= ($52,000 / $45,000 - 1) x 100
Variance = (1.16 - 1) x 100
Variance
= 0.16 x 100
Variance = 16 percent
Month
4
Budget = $45,000
Expected costs = $34,500
+ $10,000 + $12,000
Expected costs = $56,500
Variance
= ($56,500 / $45,000 - 1) x 100
Variance = (1.26 - 1) x 100
Variance
= 0.26 x 100
Variance = 26 percent
Month
5
Budget = $45,000
Expected costs = $39,500
+ $15,000 + $2,500
Expected costs = $57,000
Variance
= ($57,000 / $45,000 - 1) x 100
Variance = (1.27 - 1) x 100
Variance
= 0.27 x 100
Variance = 27 percent
Month
6
Budget = $45,000
Expected costs = $43,000
+ $12,000 + 0
Expected costs = $55,000
Variance = ($55,000
/ $45,000 - 1) x 100
Variance = (1.22 - 1) x 100
Variance
= 0.22 x 100
Variance = 22 percent
You
have to report an overrun in months 4 and 5.
Accounting technicians
need to be comfortable with numbers, but they don't need to be math geniuses.
"Calculators will take you a long way," says Gwen McFarlane. She
has her own bookkeeping business.
"I think common sense skills are
very useful," she adds. "You're dealing entirely with dollars
and cents whenever you're doing bookkeeping. You don't need algebra or anything
in that regard, but you need to be able to understand money."