The purpose of this memo is to explain the results of our variance analysis. We will discuss the implications of each variance in relation to Dessert Valley’s Premium Pale Ale and Blonde Lager.
A. Static budget variance analysis
Static budget variances provide an overall picture of whether planned results were achieved, and they are a useful starting point for investigating sales revenue and fixed costs. However, static budget variances make it difficult to determine whether a variance is due to a change in expected volume or to other aspects of performance. Premium Pale Ale
- Analysis shows an overall unfavourable result driven from an increase in variable costs driven from an increase in quantity sold versus what was budgeted.
Blonde
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Qty/efficiency variance analysis
This analysis evaluates deviations of actual resources used from budget. Values above one are favourable because they indicate that resources were used more efficiently than expected. Values below one are the opposite.
Premium Pale Ale
- The analysis shows that the brewing process is working efficiently.
Blonde Lager
- The analysis shows that the brewing process is working very inefficiently.
Overall, the cause of the budget deviations can in part be attributed to the increases in variable costs. It is recommended that Desert Valley do more to control its variable costs in order to protect its profitability. Further, the Blonde Lager brewing process is operating inefficiently versus what was budgeted. The source of these inefficiencies is crucial to determining how to make this product profitable for Desert Valley. It is recommended that the brewery analyse the brewing process in depth to determine the cause.
INTERNAL MEMO
The purpose of this memo is to review the background information on Chad Stevens and provide a critique on the findings, including recommendations for issues identified.
Issues identified:
- Chad spends a lot of time with Talon Food Products Inc. in
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is very aggressive with respect to getting paid. Chad insists that they are paid immediately after the delivery of goods. Sometimes before the goods are even entered into the system.
Recommended solutions:
- No vendors can be paid without being entered into the system along with supporting documentation.
- No orders should be received without reviewing the hard-copies of the applicable transactions.
- New vendors should be approved by Tim before being entered into the system.
- Inventory counts should be done bi-monthly by two staff who are not responsible for the ordering. Results of both counts should be verified for accuracy.
- An investigation should be done to see if there is any relationship between Chad and Talon Food Products Inc. which may constitute a conflict of interest. His excuse that early payment will solidify low prices should also be confirmed.
The purpose of this memo is to provide a summary identifying any missing areas and suggestions for improvement in the Code of Conduct provided. For any missing areas or improvements identified, suggested wording to be included in the code will also be provided.
The following sections are recommended additions to Desert Valley’s Code of
The main reason behind it is that the variance analysis of materials, labor, and overhead indicates the difference between original budget and actual sales/amount. It explains that the management should make changes in the budgets in order to diminish the chances of failure (Epstein & Jermakowicz, 2010). Moreover, the company should make changes in its all budgets like production budget, sales budget, manufacturing budget, selling budget and general & administrative. These changes would be helpful to reduce the difference between the actual and projected sales of the firm.
Use of the flexible budget shows the budgeted operating income given the actual sales. When you compare the flexible budget to the actual budget you are able to compare the total sales and cost incurred given the same units sold. The sales price variance, which is the actual sales less the flexible budgeted sales, was $14,700 favorable. This means that actual sales were higher than budgeted sales at that usage. This is attributable to the increase in service price from $25 to $26.40. Price variance for material usage was $2,100 over the flexible budget projection. This could be attributed to overuse or waste of materials. As expected, the direct labor price variance was $3,375 lower than the flexible budget amount. This is attributed to the manager’s effective use of labor. Operating expenses were also higher than the flexible budget
With the increasing ramification of economic changes and complex business functioning, each and every company has to implement budget variance analysis to identify the fluctuation in projected amount. In this report, Peyton Approved Company has been taken into consideration to evaluate the effectiveness of business functioning and plant’s operation in determined approach. It reviews the efficiencies and effectiveness of their plant’s operations. With the help of budget variance, it could be easily determined whether Peyton Approved Company has been performing its business throughout the time. Budget variance is the technique which is used by Peyton Approved Company to identify the fluctuation and variability in the set budget and implemented project. Budget variance is defined as differences between the actual amounts of expense incurred by Peyton Approved Company. It is evaluated that when Peyton Approved Company has positive cash flow in its planned budget. For instance, if amount of expenses incurred by company is less than its planned or estimated budget expenses then company has positive budget variance and vice-versa. This could be defined with the estimation of cost budget variance. The formula for the same has been given as below (Steffan, 2008).
Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.
11. Utilities and services standard output $150,000, actual output is $$218,000. This is a favorable variance of -$1777. This variance is due to reduce sales, less power at the plant is needed because less units are being made. 12. Research and Development standard output is $85,861, actual output is $82,841. This is a favorable variance of -$3,020. This variance is due to cut backs in R&D because of slow sales and low demand for new bikes. 13. Other General and Admin Expenses standard output $170,000, actual output is $172,000. This is an unfavorable variance of $2000. This increase is due to addition materials needed for advertising. 14. Other utilities and
I don’t have an issue discontinuing the practice of doing monthly physical counts on 100% of the inventory and going to a random, cycle count procedure where small numbers of items are counting over time with a goal of cycling through the inventory quarterly. I would request that the managers provide documentation to Bill of the items counted, even if it doesn’t result in an inventory adjustment. This can be done in a quick email identifying the items counted each week and the results of those counts. The purpose would be to document the cycle count process as part of our internal control of inventory. Much like we do on the upholstery side, Bill could supply a summary of the items counted in a given time period and the results of those
This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Boston Beer, in response to consumers’ preference changes to more flavorful and bitter tasting brews, was founded in 1894. Boston Beer implements a “quality at any cost” strategy with a strong emphasis on product differentiation and implementing quality ingredients into its products. For instance, Boston Beer was the first company to employ a stamped freshness date on its bottles and ingredients are imported from around the world. Additionally, Boston Beer relies heavily on contract brewing to gain competitive advantages. Boston Beer’s contract brewing strategy results in lower overhead and transportation costs, as well as
Overhead costs include rent, office staff, depreciation, and other. Once the flexible budget was complete, variances between the actual and flexible budget could be calculated (Exhibit B). The variance for frame assembly was favorable with actual costs being $82,663 less than in the flexible budget. The variances for wheel and final assembly however were both unfavorable. Wheel assembly had an unfavorable variance of $50,650, while final assembly variance was the highest at an unfavorable variance of $231,200. Taking into account these three aspects of direct cost, direct cost has an unfavorable variance $199,187. Although most overhead costs are fixed, 2/3 of other costs are variable and increase with the increased production. As shown in Exhibit B, overhead variance is unfavorable at $60,000. The direct cost variance and overhead variable together lead to a total unfavorable variance of $259,187.
The Company must revisit objectives and goals and look into available resources (partnerships). At an external level, facing competition from other types of craft brew products. The Company needs to assess competitor’s strength and weaknesses, gathering data which in turn may provide a “loophole” for New Belgium to target the competitor’s market share. The Company will gather information of potential new customers. Figuring out why do customers select competitor’s product over theirs or what customers want, as tastes and trends are always changing. There will always be regulatory laws and social propaganda of “drink responsibility.”
Companies will have set guidelines to trigger the need for a variance report such as variances over a specific percentage or dollar amount. (Cleverly, Song, & Cleverly, 2011, Pg. 381) In an analysis of revenues, a negative variation is unfavorable; in an analysis of costs, a negative variation is favorable. (Dove & Forthman, 1995) Variation is calculated by subtracting the expected or budgeted figure from the actual figure for each variable. The variable figure is then divided by the expected figure in order to establish a percentage of the variance. Wages that are over the budgeted amount would be an unfavorable variance and would be an indication that there is a need for a variance report. (Dove & Forthman, 1995) Supply costs being less than the budgeted amount would be a favorable variance, however it could result in the supplies budget being reduced if there is not a reasonable explanation as to the cause for the variance. Therefore, a variable department manager would ask for a variance report detailing the reason for the variance to be completed, otherwise it appears as if the budget is overstated and needs to be reduced.
The cost of raw materials impacted the actual profit through the price variance and the quantity variance of the direct materials. Using the level 3 analysis, it was determined that the price variance was favorable €46 and the quantity variance was unfavorable €17 which represented a flexible budget variance of favorable €29. This impacts the profit because the Italian region was very efficient with their costs of direct materials, but the Italian region came up short in their manufacturing efficiencies as they experienced an
Beer Company 2 is a brewer of “seasonal and year-round beers with smaller production volume and higher prices” that “outsources most of its brewing activity” (pg. 120). It is financially conservative, and has undergone a “major cost-savings initiative to counterbalance the recent surge in packaging and freight costs” (pg. 120).