The budget deviation is an accounting term used to describe either a deficit or a surplus in the budget, where the total cost of operating a specific project is either higher or lower than expected, and from this definition, the budget deviation is divided into two parts: the first is a positive deviation, which is when the cost is less than expected; the second is a negative deviation, which is when the cost is higher than expected; and it is worth noting that the factors that lead to the occurrence of a budget are also divided into two parts: the first are controlled factors and are represented by poor planning and low labor wages; the third are not controlled factors, such as natural disasters.
What is the deviation of a flexible budget?
To understand the concept of deviation in the flexible budget, you must first understand what is meant by the flexible budget, which can be defined in a simplified manner as a variable budget that mainly depends on the change in sales, which in turn is also reflected on production, and for the flexible budget to work, a model must be developed that automatically shows the costs when entering sales or returns during a certain period, and by determining the value of returns from this happens when goods are sold either above or below the price specified for them, or when a rise or decrease in the cost of production or operation occurs.
What is the deviation from a fixed budget?
The fixed budget refers to those in which costs and returns are expected over a specific period of time; the fixed budget remains constant throughout this period regardless of changes in sales and production, and there is usually a difference between the numbers in the budget and real numbers, indicating a deviation.The budget is either positive or negative according to the variables that occurred during the budget period, and it is worth noting that this type of budget is used by economists to measure the company’s performance during certain time periods.
Balance deviation analysis
The budget is built on guesses of costs and returns for a specific period of time, and therefore it is subject to the occurrence of deviation, or it can be said that the budget deviation is an inevitable thing. From this comes the importance of an analysis of deviation to know the causes and fill the differences in the budget, and the deviation can be analyzed by tracking some of its following types:
- Deviation of materials costs: This deviation appears when a change occurs either in the amount of materials used in production or their value, so there is a difference between the expected cost and the actual cost.
- Deviation in the cost of employment: Companies set a budget for employment wages and are corresponding to returns based on the productivity of this employment, and in the event of a decrease or increase in productivity, whether due to reduced working hours due to leave or increased employment efficiency, the expected returns do not correspond to the actual returns.
- The deviation of the sale price: The price of the goods or services that the company sells during a specific time period is placed in the budget, and in the event of a rise or decrease in value due to a lack of demand or increased demand, this makes a difference between the budget and reality.
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