Analysis Of Sales Variance Analysis

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Part B Variance analysis is the quantitative investigation of the difference between actual and planned behavior. (Drury, C.,2012 ) It is used to maintain business control. Firstly, this essay will make an analysis that the reason of variance of sales, materials, labor and overhead separately, and the second part is the interrelationship between these variances. 1.Sales Variance Sales volume variance is the difference between the budgeted and standard quantity multiplied by standard margin. ( Collier, P.M, 2006) The variance is unfavourable because there are 200 units budgeted have not been sold out. When the variance is favourable which means there is a short supply of stock before the end of this period. Sales price variance is the difference…show more content…
The favorable variance can be caused by 1). The materials are more easy to work with. 2). Using skillful workers or improve the skills of workers exists through training and improving productivity through development. 3). A more efficient manufacturing equipment has been installed. The variance is adverse in part a which may be caused by 1). Using poor quantity raw material which is not easy to work with 2). The new labor of labor with low skill cause inefficient production 3). The manufacturing equipment is old or there are some technical problems cause a decline in the manufacturing equipment productivity. ( Collier, P.M,…show more content…
(Collier, P.M.,2006) The advantages of ABC is; 1. Extend the concept of cost behavior. ABC use cost driver to interprete the cost behavior and classify costs as short-term variable cost, long-term variable cost and fixed cost. 2. Increase accuracy in the product cost calculating. While using ABC, direct materials and direct labours can be classified into products, manufacturing overhead will be classified into homogeneous cost pool. Then, apportioned the manufacturing overhead into products according to reasonable distribution cost standard. The standard of cost allocation become more direct and specific leading to many traditional uncontrollable indirect cost change into controllable direct cost. And this provide more accurate information to cost control. 3. It helps manager to make decision. ABC provides more real and plentiful measuring information which helps manager to make decision with relevant cost. (Drury, C. ,2012) 4. Make the product more competitive. ABC pay more attention on product design,research and development and management of quantity cost. Improve the competitiveness through allocating limited resource
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