Often, you will find that variances are due to errors in the original budget set. Analysis may show that the assumptions made in creating the budget were inaccurate. Let’s assume, for instance, that you estimated a 10 percent increase in cost of office supplies but your supplier actually raised costs by 15 percent. To save money over the long haul, you might want to meet with your supplier to see if you can work out a better deal. If not, then you might want to consider purchasing from another firm.
You might also have underestimated some costs, thereby saving your company some money. These positive variances have to be reported, too.