Question

briefly discusses why it is important to make variance analyses, and how to conduct such analyses in a manufacturing company. Please apply the “Cost-Benefit Approach” in your discussion whenever possible.

Answer 1

Variance analyses is important because in variance analyses we analyses the variations between standard and actual.

E.g. We made a production plan and we procure the material of 100 kg as per our production plan but in actual during production of goods we consumed material 110 kg, which is more by 10 kg. Hence variance is 10 kg.

In another example we made a budget to spend $ 1,000 on labor but in actual we spent $ 1,100 on labor. Means budgeted vs actual.

Importance of variance analyses: It important to find out the tolerance level of up and down in budgeted vs actual so that we can prepare a surplus in precaution.

Importance of Variance Analyses in Manufacturing Companies: In manufacturing company there are lots of uncertainty in various department at various level, like in finance budgeting in finance department, production budgeting in production department, labor budgeting in HR department hence variance analyses help to make smooth production in manufacturing companies hence it is impotent in these types of companies.