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
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,
(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
How might it overcome these problems? The ABC system divides the overheads resources by seven different types instead of two: direct labor support, machine operation, set up hours, production order activity and administrative overhead... ... middle of paper ... ... rs OH = 27.56 x .310 = 8.54 Materials Dollars OH = .097 x 6.44 = 0.62 Total Cost (per 100 parts) $22.85 ABC METHOD Total Cost
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
We will calculate the costs of the Geoffrey doll, the specialty branded doll #106 and the cradles using the cost study conclusions given. Quantity Variance (QV) = (SQ-AQ) SP = (24,900 – 24,000) 30.72 = $27,648. Total Variance = PV-QV = 48720-27648 = $21,072 From these calculations we can determine that G.G. Toys had a favorable price variance even though they sold fewer units than they had forecasted.
Porter (1997) suggests in order to gain competitive advantages in the changing business environment, it is essential to design a generic strategy for the business: product differentiation or cost leadership. The competitive strategy is determined at round 2, when recognised our rivals held whole product profile which was the product differentiation strategy. To differentiate our strategy from rivals for competitive advantages, Digby designed to imply the cost
What could be the reason or reasons behind such a concentration in manufacturing? One reason could be the nature of the production process at the company. It is highly specialised. The products have to meet certain standards and levels. It consists of four distinct stages (production of cast iron; casting; finishing; and enamelling). The process thus is a distinct and orderly method.
This report comprises of the explanation of two different companies working in different market fields, the two companies I’ve chosen are Primark and Samsung I am going to write about the influence of the 4vs which are the volume of output, variation in demand for output, visibility of production, and variety of output. I am also going to look at the performance objectives in each of the companies. Example, for a given year and how they are able to reach their objectives, and also the effect on the cost efficiency of the operations.
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
Do a further analysis of production costs to improve efficiencies. If all else fails, either increase prices to the point where the contribution margin is positive, or drop the customer. 3. What is the difference between a'smart' and a Managerial Implications and Analysis Limitations Managerial Implications: What are the benefits of Moving from a traditional cost accounting system to ABC can reveal hidden costs and hidden profits on the basis of the identified activities (i.e. customers, orders, etc. ). Treating overhead costs as "fixed" can cause an unfair and highly misleading distribution of overhead costs, which are in fact variable.
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
be the increase in jobs. Creation of new jobs will take place in the manufacturing
Talbott, J., Brack, L. & Lee, J., 1988. Variance analysis in a service business. Strategy & Leadership, 16(3), pp. 36-40.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.
There are many elements affecting to the success of a launching. The basic factor is to develop product that satisfies consumers’ demands and maintain the brand promise. However, consumers are not only looking for the quality of product but also concerning about the price, the promotion and so on.
Of greater importance, job-order costing system needs to accumulate three types of information which include direct materials, direct labor, and overhead. These factors are highly important essentially because of the significant variations in the products produced. Hence, each product or batch has a job identification number and costs are accumulated by a job number. All the more, job-order costing systems requires detailed accounting information and thus the total cost of all jobs is accumulated in one work-in process inventory control account; details of the cost materials, labor, and overhead for each job are kept in subsidiary records called job-order cost sheets (Edmonds, Tsay, & Olds,