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And finance Allah shmoop What is variants Analysis Well basically

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it's the fancy business Way to ask Why didn't things

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go as expected Or how on Earth are we so

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far off Plan plan is the key word You made

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a plan a k a Budget Others in the company

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rely in your planning and budgeting You know from the

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hiring needs of the union factory workers this year to

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the marketing spend for TV ads from that department to

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the legal team who's fully plumbed up for the eleven

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point three lawsuits you expected you'd have to defend this

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year But then real life happened and things didn't quite

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go as you expected What happened Well they'll figure it

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out You're going to use variance analysis And yes it's

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a whole science unto itself You own zesty kitty a

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leading provider of condiments for pet food You launch a

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new Suraj based sauce meant to pair perfectly with the

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frozen mice that people feed to there Pet snakes It's

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called spicy serpent surprise and cats love it As much

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as I know a cat can love anything based on

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market research and projections derived from other products you already

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sell while you expect sales of three hundred thousand dollars

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in the first month and you expect contributed profits from

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this product to be one hundred twenty five grand giving

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you a contribution margin of about forty two percent Well

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a month after launch you look at the numbers you

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brought in revenues of four hundred thousand dollars way better

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than expected However profits and margins fell meaningful E short

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of projections You only brought in one hundred thousand dollars

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in contributed profits A contribution margin of just twenty five

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percent Well shy of the budgeted forty two percent So

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w t f baby Well you run some variance analysis

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And as it turns out you had unexpected demand from

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Ireland You were pretty sure you'd heard they didn't have

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anything left there but oh well additional demand is usually

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a good surprise Right That drove your four hundred thousand

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over the much less revenue that you originally thought But

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the extra demand meant you had to scramble to make

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enough spicy serpents Surprised to feel all the orders Well

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to do this you had to pay overtime to your

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union workers in order to crank out the extra sauce

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And that was expensive Now that you know what happened

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you can well kind of adjust You know the extra

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demand is there so you can hire some additional workers

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carefully These new employees will get regular pay and the

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additional capacity means you won't have to pay anybody usurious

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overtime Since you're not paying the extra labor costs associated

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with the overtime well margins will return to the expected

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levels Meanwhile you adjust your revenue projections to the new

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levels The added demand is still going to be there

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next month so you revise your expectations You're going to

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make them higher revenues go up So for the second

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month you expect to repeat four hundred thousand dollars in

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revenue However your labor adjustment should allow margins to get

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closer to the originally expected forty two percent which would

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give you contribution profits of about one hundred sixty eight

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grand Right Well once the month is over you'll look

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at the numbers and see if anything else doesn't match

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the new budgeted expectations Then you'll run the variance analysis

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process again and it becomes part of an ongoing cycle

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Basically checking budgets against projections against riel Life results well

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When the process is done you'll know whether your projections

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were just wrong and need to be adjusted You know

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like with the unexpected Irish demand for your new mouse

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sauce or you'll find points in the production process and

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distribution process and marketing process where your costs went awry

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like they were too expensive to get Your stuff shipped

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are marketed or placed or put on shelves or whatever

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was needed and then you'll adjust You can implement changes

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here to get things back to what you predicted Like

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when you figured out how the overtime hurt your profit

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margins and you brought in new workers overseas likely to

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fix the unnecessarily high labor costs Well now thatyou're Suraj

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a mouse sauce has taken off You can start your

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RND department working on its next big project soy sauce

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flavored insects for pets Spiders who

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