Question

Question 1B

1. Explain the relevance of an activity variance for expenses for management decision making purposes under a flexible budget
2. Give a detailed explanation on how the Balanced Scorecard can assist Ivory Limited, a manufacturing company to deliver on its new mission statement using the four perspectives: financial, customer, internal process, learning and growth.

Ivory Limited’s mission statement states that: “We want to continually grow through our commitment to quality and delivering quality products to our customers”

Answer 1

The relevance of activity variance for managerial decision making:

Standard costing is an important term used under cost accounting. It is a management technique where are standards are set by the management based on the industry best practices, the actual performance is compared with such standards, any deviation of the actual performance from the standard performance is termed as the variance. The variance analysis is an important management function. It helps the managers in finding the various reasons behind such deviations and formulating the strategies accordingly. These variances are generally classified into two parts, price variance, and quantity variance. Activity variance for expenses is required to be analyzed by the managers to find out the reasons behind such deviation. A favorable variance provides the motivation, whereas, the unfavorable variance is required to be controlled to get the maximum profitability and efficiency.

Balanced scorecard:

The balanced scorecard is an important strategic management tool. It helps the business firm in successfully implementing the strategies and measuring the progress in the form of a scorecard. It had basically four perspectives, financial, customer, internal process, learning, and growth. The success of a business firm broadly depends on these four factors only.

The business firm willing to provide quality products to the customers needs to set the objectives in terms of the above four perspectives, various measures through which the performance will be monitored, the targets required to be achieved, and the various initiatives taken by the personnel to achieve such objectives.

• Financial perspective: Maintaining adequate liquidity to meet the day to day business expenses.
• Customer perspective: Providing quality products and services to customers and ending the timely delivery of goods.
• Internal processes: Making the internal processes efficient to produce quality goods at a reasonable cost.
• Learning and Growth: Providing the necessary skills and training to the workforce to increase their efficiency and the ability to produce quality goods, and to reduce the errors.