Budgets are the primary control mechanism for companies to monitor their

performance by analyzing favourable and unfavourable variances - and making

corrections throughout a period (year). What are the possible causes of
variances (be specific or use examples)?

A1. A budget variance is a periodic measure used by government, corporations

and individuals to measure the difference between the budgeted and the actual
figures of an accounting period. The budget variance can be favourable,
increasing net income I.e. costing less than the budget kept, or unfavourable,
decrese in the net income i.e costing more than the budget kept.

There are various causes of variances I would be highlighting three main

according to my understanding:
1. Unexpected increase in variable cost: such as fuel, labour, raw material
increase or decrees in the variable cost of manufacturing any product can
lead to favourable or unfavourable variances. For example, if the
economy changes there might be spike in the raw material prices that can
lead to variance in the budget incurring a decreased income
2. Human Errors: Variance in budget can also occur with human errors by
taking in consideration faulty numbers or data. Even a small error while
compiling the budget for a period can lead to variances.
3. Demand of product: Sudden shift in product demand can cause variance
in the budget. It can be favourable if your quality of product is better than
the competitors or can be unfavourable if the competitors come up with
better quality and reduced price.

Have you ever had to adhere to a formal budget, and, if so, what was your
experience?

Yes, I have been adhered to a formal budget and my experience regarding it was
quite informative. As while formulating the budget there are a numerous factor
that are taken into consideration of the present as well as the forecasted period
to reduce unfavourable variance. I got to know about the three forms of budget
that was compiled to function on various level such as balanced budget, surplus
budget and deficit budget. According to these budgets that would be applied to
the situation the manufacturing process would be changed to incur maximum
profits.
Pro Forma Projections are usually based upon scenarios. What would be
examples of scenarios that might form the basis of multiple scenario pro forma
projections?

1. Business planning and financial modelling.

It's helpful for business leaders to look at side-by-side comparisons based
on different assumptions to guide their strategies. If, for instance,
management is trying to decide between two separate proposals or
business plans, they can use pro forma statements for each scenario to see
which might serve their goals and vision best.

2. Impact of financial decisions

A scenario where you want to gauge the impact of a significant event, a
business combination or refinancing debt. Using a pro forma income
statement, balance sheet, and cash flow statement to project how a
significant event might affect its financial position and would the decision
be according to your liking or not
As a result, the pro forma projection can be used for multiple scenarios ranging
from simple sales growth projection to more intricate 9investment purposes.