Case: Coal and Variance

1124 Words Apr 5th, 2013 5 Pages
Background of Company
Luotang Power is a coal-fired power plant located in central China. This company is a subsidiary of China Hua Tong Power (HT Power). The main activity of this company is to generate electricity. Luotang Power operates using a 600 MW coal-fired power plant and sells the generated power to their primary customer, the Hubei Provincial Power Company (HPPC). HPPC was the only company in Hubei Province that owned all the power transmission and distribution facilities and independently owned power plants operating in the province. The coal is supply by Pingdingshan and according to the contract, it is required to supply low sulfur bituminous coal that met certain quality specifications.
Main Issue and
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While in 2010 the quantity of variance showed favorable 380,376 MWh due to increased sales from year 2009 to 2010.

Price variance = (Price per MWh in Current Year – Price per MWh in Prior Year) x Net Generation MWh in Current Year

(0.3974-0.3817)x(3,427,351) = 53,809 (favorable)
(0.3817-0.4186)x(3,937,377) = 145,289 (unfavorable)
For price variance, in 2011 showed favorable of 53,809 because the average price for all electricity sold increased from year 2010 to 2011. While in 2010 showed unfavorable of 145 289 because electricity sold decrease from year 2009 to 2010. Although a decline amount sold in 2011 but is in line with price increases offered electricity and vice versa in 2010 where amount sold increased but in low price offered. The unfavorable amount quantity variance also in in line with favorable amount price variance in year 2011 and vice versa in year 2010 where favorable amount quantity variance in line with unfavorable amount price variance.

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