Variable Analysis
Introduction
The variance analysis for the Brightlite line of products will be used to promote management action at the earliest possible stages. This analysis will process the examining in detail each variance between actual and standard costs. The results will determine the reasons why budgeted results were not met. The types or variances computed depend on the responsibility centers and the level of management for which the review is performed. Since the objective is to determine the degree of corrective action needed, the variances computed must relate to key performance indicators considered critical to the success of the responsibility center. The primary objective of cost variance analysis is to permit organizational managers to detect and correct inefficiencies wherever they exist in operations involving expenditures. Decisions are generally necessary as to what kinds of variances to compute whether or not to investigate and whether or not to investigate a particular variance once computed.
Variances
The variances for the Brightlite line of lighting products are as follows:
a) Price variance for raw materials purchased
= (standard price - actual price) * actual qty purchased
= (6.8-7.1)*11,400
= (3,420) U
b) Raw materials usage variance
= (standard usage - actual usage) * standard price
= ((1,900*5)-9,260)*6.8
= 1,632 F
c) Direct labor rate variance
= (standard rate - actual rate) * actual hours
= ((14-14.35)*4,420
= (1,547) U
d) Direct labor efficiency variance
= (standard hours - actual hours) * standard rate
= ((1,900*2.4)-4,420)*14
= 1,960 F
e) Variable overhead spending variance
= (standard rate - actual rate) * actual hours
= ((12,...
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... is difficult to plan precisely and control these types of costs. Company goals should identify specific objectives and policies that will lead to organizational success before top management can budget amounts for discretionary cost activities.
X Control Committed Costs - Management must decide which activities are necessary to attain company objectives and determine which assets are needed to support those activities.
Conclusion
Budgets are established in part to provide a benchmark for evaluating performance. For cost centers, these budgets typically seek to achieve efficiency and control by specifying the expected cost levels. Budget variances refer to deviations of actual spending levels from the budget. Unfavorable budget variances would typically call for investigation while favorable variances may not require any explanation unless they are material.
I attended the Saturday Lab 1 session discussing the Denison Specialty Hospital case study. In our session, we had a through discussion into the different budget terminology. I learned about the difference between accrual and cash accounting methods, which is based on the timing of when the revenue and expenses are recognized. I also learned about responsibility centers as an organizational unit under the supervision of a manager, who is responsible for its activities and results. In addition, the manager is accountable for the budget of the department that they head. Therefore, a centralized form of management in developing the budget because it makes easier to because the information for the department budget is located
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
Roybal, H., Baxendale, S.J., and Gupta, M., (1999), “Using Activity-Based Costing and Theory of Constraints to Guide
ensure that management is doing what it can to establish means of effective internal controls by having to report on them.
* Manage the purchase of equipment and ensure all appropriate accounts are funded, obligated and adjustments processed
The Goal is a book that focuses on the theory of constraints in order to improve production. Eliyahu Goldratt brings us a pleasant story that shows the important strategies that any manager or CEO should follow to be successfully productive, and capable of reaching their goals. The book easily explains and demonstrates many attainable ways for any human being to learn how to manage their industrial relations, business processes, and also, their personal lives.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).
The managers must set organizational goals aligned with the company mission. This will provide a strategy for achieving those goals. For example, planning can be seen at every level such as creating goals for sales as well as for the customer experience (Higgins, 1994).
...ement must be aware of what each cost has influence over, rather than diminishing the uppermost expense, as this may result in various consequences such as a decrease in efficiency due to an inadequate amount of resources, which completely defeats the purpose of cost cuts and may also spark a decline in its market due to poor quality. By reinvesting the money extracted from one sector into another aspect, such as upgrading to more innovative technology to further increase both efficiency and savings.
Controlling is the fourth management function and its purpose is straightforward- to make sure that actual performance meets or surpasses objectives. It is well used for decision making and problem solving. Effective control depends on other management functions and it gives feedback to them. These functions are planning, organizing and leading. Planning sets directions and allocates resources. Organizing puts people and material resources together in working combinations. Leading motivates people to use these resources in the best way. Basically, the function of controlling is to make sure that the right things happen in a right time and in the right way.Control helps that overall directions of individuals and groups are consistent with short-range and long-range organizational plans. Also, it helps to ensure that objectives and accomplishments are coherent with one another throughout an organization. Moreover, it helps maintaining fulfillment with essential organizational rules and policies. Good example where we can see role of control is in helping to protect individual rights to become equivalent with employment opportunities at work. The control process practiced by managers includes four steps: 1) establish objectives and standards 2) measure actual performance 3) compare results with objectives and standards and 4) take actions if necessary1. The controlling process starts with establishing performance objectives and standards which means that the controlling process begins with planning. Performance objectives should be defined and associated with specific measurement standards for determining how well they are accomplished. Standards are the targets of performance. The next step of the control process would be measur...
Time-phased project work is the basis for project cost control. Work package duration is used to develop the project network. Further, the time-phased budgets for work packages are timetabled to establish fiscal measures for each phase throughout the project. The time-phased budgets are to emulate the real cash needs of the budget, which will be used for project cost control. This information is useful to estimate cash outflows. The project manager's attention is on when the costs are to occur, when the budgeted cost is earned, and when the actual cost materializes. This information is made up to measure project schedule and cost variances (Gray & Larson, 2005). The following are typical types of costs found in a project:
...h the full expenses included. Challenge overseeing and incorporating over a huge supply change and developing patterns.
...c management or planning presents a structure or agenda for dealing with issues and solving problems, therefore, understanding potential risks or pitfalls of strategic management and being prepared to deal with them is critical and vital to success. Strategic management not only permits top leaders and managers to be more proactive than reactive in building or developing their own potential or outlook in an organization, and it also lets them to make the first move and influence activities, consequently, executives and management can control or in charge of the company’s own future, and achieve its main goals and objectives. Overall, increasing cost-effectiveness and efficiency, improving the value for its stakeholders, and advancing customer services and management excellence are the key objectives of strategic management and decision making in an organization.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support