Question

You work for a manufacturing company and have just completed the budget process for the upcoming business year. At the end of the first quarter you take the actuals and compare them to the budget. You notice there are differences which need explanation and create the static and flexible budget variances. You present this to management and they request you to explain the variances in more detail.

Use your own calculations to create the Flexible Budget Performance Report and present this. You also need to explain the reasons for the variances and who is responsible. Explain the calculations used to create this report.

Explain why the variances using standard costs better reflect the actual variance and how to determine who is responsible for each variance

Answer 1

Standard costing:-

A diagnostic device to comprehend various sorts of confused according to planned conjecture.

A noteworthy segment to examine the absolute differences:-

1. Material cost fluctuations

2. work cost fluctuations

3. Overhead fluctuations

Further fluctuation examination gives each reason in every one of the cost differences because of various reasons

Material expense Variance= Material Price Variance + Material Usage Variance

Work cost change = Labor rate Variance + Labor Efficiency Variance + Labor inactive time Variance

Fixed Overhead Variance = Fixed Overhead Expenditure change + Fixed Overhead Volume Variance

Variable Overhead Variance = Variable Overhead Expenditure change + Fixed overhead proficiency Variance

Deals Variance (Turnover/Value) = Sales Price Variance + Sales Volume Variance

Deals Variance (Margin) = Sales value edge Variane + Sales edge volume Variance

By breaking down each extraordinary reason for difference, regarded head to staff can be represent blunder or false administration.