The Process Of Analyzing Overall Performance Of A Company

The Process Of Analyzing Overall Performance Of A Company Often Entail

The process of analyzing overall performance of a company often entails making comparisons between anticipated costs and actual costs for areas such as materials, labor, and factory overhead. To make such comparisons, managers use the principle of variance analysis to determine how well company operations are meeting expectations. Within a Human Resource budget, the costs per hire including funds on recruitment, training, evaluation and total rewards represent a significant portion of an organization’s expenses. These costs vary widely across industries. In this Application, you will analyze two scenarios using the information presented in your Resources.

You will apply your knowledge of variance analysis, flexible budgets, and overhead to draw conclusions about the following scenarios. You will set up and use an Excel spreadsheet for all your calculations for the problems below, and the spreadsheet you develop should be what you turn in for the Application. Note: The Resources section includes tutorials for those who might need help in designing and using an Excel spreadsheet.

Paper For Above instruction

Analysis of Company Performance Through Variance Analysis and HR Decision-Making

Introduction

Analyzing the overall performance of a company is crucial for effective management, especially in understanding how actual costs compare to expected costs. Variance analysis serves as a vital tool in this regard, enabling managers to evaluate operational efficiency and financial performance. This paper examines how variance analysis applies to factory overhead costs and labor hours in YumTown Frozen Foods, and to manufacturing overhead and productivity issues in Honey Bear Confections. Additionally, it discusses the relevance of variance analysis for Human Resources (HR) managers and line managers in making informed staffing and budgeting decisions.

Part 1: YumTown Frozen Foods – Variance Analysis of Factory Overhead Costs

YumTown Frozen Foods specializes in high-end TV dinners, and as their operations expand, understanding manufacturing costs becomes essential for strategic planning. The company reports a mixed cost structure relating total factory overhead to direct labor hours (DLH). The data provided includes the following:

The flexible budget formula for factory overhead is typically linear and based on the variable cost per labor hour plus fixed overhead:

Flexible Budget Formula:

\[ \text{Factory Overhead} = \text{Variable Overhead Rate} \times \text{DLH} + \text{Fixed Overhead} \]

Calculating the variable overhead rate involves analyzing the high-low method. Using the high (August: 800 DLH, $4,900) and low (March: 300 DLH, $2,400) activity levels:

Variable rate = (High overhead - Low overhead) / (High DLH - Low DLH)

= ($4,900 - $2,400) / (800 - 300)

= $2,500 / 500

= $5 per DLH

Fixed overhead component is determined using either high or low point:

Fixed overhead = Total overhead - (Variable rate × DLH)

At high activity:

= $4,900 - ($5 × 800) = $4,900 - $4,000 = $900

Alternatively, at low activity:

= $2,400 - ($5 × 300) = $2,400 - $1,500 = $900

Thus, the flexible budget for factory overhead can be expressed as:

\[ \text{Factory Overhead} = 900 + 5 \times \text{DLH} \]

Application in HR Decision-Making:

Understanding the overhead costs per labor hour assists HR managers in making staffing decisions. If overhead costs are exceeding expectations, HR might consider adjusting headcount or training efficiency programs. Conversely, during periods of low overhead consumption, the organization might optimize staffing levels, avoid unnecessary hires, and improve overall productivity.

Part 2: Honey Bear Confections – Analyzing Overhead and Productivity

Honey Bear Confections produces bear-shaped sweets, with costs analyzed through a static budget report for June. The data includes:

- Budgeted production: 10,000 bags; Actual production: 12,000 bags

- Budgeted indirect labor: $26,000; Actual: $31,200

- Budgeted supplies: $25,000; Actual: $29,500

- Budgeted utilities: $19,000; Actual: $22,500

- Total budget: $70,000; Actual: $83,200

The variances highlight significant cost overruns:

- Indirect labor variance: $5,200 unfavorable

- Supplies variance: $4,500 unfavorable

- Utilities variance: $3,500 unfavorable

- Overall variance: $13,200 unfavorable

These variances suggest decreased productivity or inefficiencies, possibly due to employee performance issues or higher than expected utility consumption.

Recommendations:

Analyzing these variances, management should investigate underlying causes—such as employee productivity, machine efficiency, or process inefficiencies. Implementing targeted training programs, maintenance schedules, or process improvements could mitigate waste and unnecessary expenses. Furthermore, it might be beneficial to revise the static budget assumptions to incorporate more flexible, activity-based budgets that better reflect actual operations, enabling more accurate cost control.

Part 3: HR Managers and Line Managers in Variance Analysis

Variance analysis serves as a strategic tool for HR managers to evaluate their budgeting effectiveness, control costs, and improve recruitment and training processes. For instance, HR can analyze costs per hire, including recruitment, onboarding, and training expenses, to identify inefficiencies or areas requiring resource allocation adjustment. Monitoring these variances helps HR managers forecast future needs and optimize staffing levels aligned with operational demands.

Line managers further utilize variance analysis to control direct and indirect labor expenses. By examining variances, they can identify performance issues, inefficient workflows, or equipment needs that impact productivity. Understanding the reasons behind variances allows line managers to implement corrective actions, such as refining work schedules, enhancing employee skills, or upgrading technology to improve efficiency. When both HR and line managers actively leverage variance analysis, organizations enhance overall performance, maintain cost control, and foster continuous improvement.

Conclusion

Variance analysis provides a comprehensive framework to evaluate and enhance company performance by comparing actual costs with budgets. For HR managers, understanding variances in labor and overhead costs facilitates strategic staffing and resource planning. For line managers, analyzing variances in productivity guides operational improvements. When effectively integrated into decision-making processes, variance analysis supports organizational efficiency, cost control, and sustainable growth.

References

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