A “variance is the difference between an actual amount and a budgeted amount” (Miller, 2018, p. 1267). A favorable (F) variance is if an actual amount increases operating income, which is possible by either actual revenue > budgeted revenue, or actual expense < budgeted expense. An organization within the airline industry I am interested in learning about is the manufacturer, such as Boeing. An example of a favorable variance that would not be good news for the organizations performance is if an outsourced parts actual cost from a supplier is significantly lower than its standard cost due to using lower quality materials. To correct the variance I would most likely switch suppliers as changing the material quality can change part tolerances, wear and reliability, which is a significant issue when it comes to aircraft which transport hundreds of people at a time. Quality cannot be sacrificed in this industry and therefore I would not risk accepting the savings and favorable variance.ReferencesMiller-Nobles, T. & Mattison, B. & Matsumura, E. (2018). Horngren’s financial & managerial accounting: the financial chapters. 6th ed.
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