Page 55 - Budgeting for Managers

Budgeting for Managers
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When Does a Variance Matter?
Some variances matter and others really don’t. In addi-
tion, the size of the variance may matter as much as or
more than the percent. For example, a variance of 33% sounds high, but
it isn’t a big deal that you spent $6 on specialty papers instead of $4.
The 100% variance on equipment expense is not a surprise at all: you
don’t buy equipment every month. But if your plans change and you
expect a major variance on equipment for the whole year, that is
important. Does the 100% variance ($15.00) in Miscellaneous matter?
It isn’t much money. But it might indicate that someone on your staff is
being sloppy and recording something in Miscellaneous that should be
tracked in another account. Problems like that are best caught early.
Use your intelligence when analyzing variances.
copies than expected? Did you stock up because there was a
big sale on supplies?
You can create a variance report that explains any signifi-
cant difference between actual and estimated expenses.

Accounts Receivable and Aging
The accounts receivable aging report shows us our customers
are paying us on time. Take a look at the example in Table 2-7.
This is an example of a very healthy accounts receivable
aging. The age of account is the number of days past either the
transaction date (the date the bill was sent) or the due date of
the bill. If it is set from the due date of the bill, there will be an
additional line, Currently Due, to show amounts that have been

Age of Accounts Value of Percent of
(Days) Receivables Total Value

0 - 10 $15,000 60.0%
11 - 30 7,500 30.0%
31 - 45 2,000 8.0%
46 - 60 400 1.6%
Over 60 100 0.4%
Total Receivables $25,000 100%
Table 2-7. Sample accounts receivable aging report