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Unfavorable Budget Variances

Decent Essays

The plastic and cedar direct materials both had unfavorable flexible-budget variances. It is unfavorable because they under budgeted the cost of the direct materials they were going to purchase. This could have been caused by a sudden increase in the cost of buying the materials, or they switched suppliers and had to pay more. The cedar also had an unfavorable price and efficiency variance, while the plastic had an unfavorable efficiency variance. In order to improve this, they need to try to stay consistent with their suppliers so that there is less of a variance. They also need to watch market trends more to see whether people are wanting to buy bird houses, because if they are, then they should budget a higher number of units sold, or vice versa. The company also needs to be more efficient on how they use their materials. For example, the workers need to not use too much or too little cedar when making a bird house, or else …show more content…

They ended up paying the workers a lot more than they anticipated. They may have had to work longer hours in order to complete the bird houses, whether it was because they were working too slowly, or they tasks were to hard to complete in the given time. They could have also made poor-quality bird houses that needed to be rebuilt, which would have made them throw the old one out. Along with this, the efficiency variance was also unfavorable. This proves that the workers are not completing their work in an efficient manner. In order to improve this part of the budgeting process, the managers should talk with the employees about needing to speed up the process of making the bird houses so they are done on time. The managers may need to rework the setup of the manufacturing center so that the steps to completing the bird house are one after another. This would help the workers to work more efficiently, causing the direct labor variance to

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