All 38 Variance Analysis questions
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Budgeting & Forecasting › Variance Analysis

How do variances reconcile budgeted profit to actual profit (an operating statement)?

Intermediate

Answer

An operating statement starts from budgeted profit, applies the sales volume variance to reach the flexed-budget profit, then lists all cost and sales price variances (favorable adding, adverse subtracting) to arrive at actual profit. It provides a structured reconciliation showing exactly which variances caused the difference.
Budgeted profit +/- sales volume var -> flexed profit
+/- price/efficiency variances -> Actual profit.
Real-world example The operating statement bridges from budgeted to actual profit, itemizing each variance's contribution.

Common follow-ups: What is the first adjustment from budgeted profit? | What does the statement achieve?

Flexible Budgets The Master Budget Variance Analysis
All 38 Variance Analysis questions