Variance AnalysisVariance reports indicate the performance of the organization by comparing the actual amount shown to the planned amount. A variance report will include the budget period, project in question, and the items. The monthly budget shows that salaries are higher and suppliers are lower than the budgeted amount. The manager will nto determine the causes of the higher salaries. Tcould be due to several reasons including miscalculations in the salaries, overtime, and allowances. The report should include all the employee information such as the salaries they are supposed to earn, the number of hours they have worked overtime and the rates used in calculating their pay, and any extra help that the department received from non-employees. For instance, the hospital might have offered internship to some people and it could have set aside allowances for them. In some cases, hospitals require the services of specialists for different reasons such as teaching and treating patients. Such costs might not have been budgeted for, but they can appear in the actual report.The budget shows that the supply costs are on the lower side. Tcould have happened because the hospital has not acquired the supplies that had been budgeted for. The report should include all new supplies received by the hospital in the specified time, their date of purchase, price, quantity, make, and the supply vendor. Including the individual supplier or company is important. Suppliers charge differently for their merchandise. Tinformation would also reveal any flaws in the tendering or procurement process. The report should also include all the required supplies. In some cases, the staff responsible for purchasing the supplies might have neglected or forgotten to get them. Twill show once all the expected supplies have been accounted for in the report.Variance analysis enables the management to make decisions such as implementing control measuor allocating resources. The management is able to streamline operations based on the figuindicated in the report. The management is able to spot any trends, opportunities in cost measures, and other issues, which might affect financial planning. Interpreting the variance report will indicate whether the company leans towards under or overspending. Tis especially important if the company does not have adequate resources. It identifies the problem areas in the department. The lower supply issue might not be a big issue. On the other hand, it could indicate that some unscrupulous business involving corruption is going on. For instance, if the people tasked with the responsibility of getting supplies used a different vendor who offered them cheaper prices, then the report will be able to indicate such incidences.Positive variance means that the department spent less than what was actually budgeted for. They are favorable but they do not always mean good news for the company (Berry, 2011). As shown in the lower supplies amount reported, they could indicate incompetence and unscrupulous activity. On the other hand, they could also mean that the department?s cost cutting measuare effective. Negative variance shows that the department spent more than was budgeted for (Berry, 2011). Tshows that the department needs to review the way it formulates its budget. It could have omitted some important considerations during preparation or it might have failed to include some miscellaneous allowances. The overspending could also indicate that people are not using resources efficiently. It could also indicate an increase in prices, which will be important when formulating the next budget. Reference:Berry, T. (2011). . Retrieved from http://articles.bplans.com/growing-a-business/plan-vs-actual-part-3-understanding-variance-analysis/81
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