Variance Analysis: Write An Analytical Summary Of Your Learn

Variance Analysiswrite An Analytical Summary Of Your Learning Outcomes

Variance Analysiswrite An Analytical Summary Of Your Learning Outcomes

Variance Analysiswrite An Analytical Summary Of Your Learning Outcomes

Variance Analysis Write an analytical summary of your learning outcomes from chapters 9 and 10. In addition to your analytical summary, address the following: 1. As a manager, discuss how you would use or have used the concepts presented in chapters 9 and 10. 2. Why might managers find a flexible-budget analysis more informative than static-budget analysis? 3. How might a manager gain insight into the causes of flexible-budget variances for direct materials, labor, and overhead? Provide at least one numerical example to support your thoughts.

Paper For Above instruction

Variance analysis, particularly the use of flexible budgets versus static budgets, plays a crucial role in managerial accounting and decision-making. Chapters 9 and 10 delve into these concepts, emphasizing the importance of flexible-budget analysis in controlling costs, understanding variances, and improving organizational performance.

As a manager, the application of these concepts involves systematic comparison between actual financial performance and budgeted figures to identify deviations and their causes. The primary benefit of using flexible budgets over static budgets is their ability to adjust for changes in activity levels or sales volume, providing a more accurate and meaningful basis for performance evaluation. Static budgets are prepared based on fixed assumptions about future conditions; however, these assumptions often do not hold true, especially in dynamic market environments. Flexible budgets, on the other hand, are recalculated at different activity levels, enabling managers to discern whether variances are due to operational inefficiencies or changes in activity levels. Consequently, flexible-budget analysis becomes more informative and actionable, guiding managers to make precise corrections.

A key aspect is understanding the causes of variances in direct materials, labor, and overhead costs. Managers can analyze these variances by decomposing them into price and usage variances for materials, rate and efficiency variances for labor, and variable and fixed components for overhead. For example, if the actual cost of direct materials exceeds the flexible budget amount, the manager might investigate whether the price per unit was higher than expected or if wastage increased.

Consider a numerical illustration: suppose the flexible budget anticipates direct materials cost at $10 per unit for 1,000 units, totaling $10,000. If the actual cost turns out to be $11 per unit for the same quantity, totaling $11,000, the total variance is $1,000 unfavorable. To dissect this, the manager compares the price variance—expected $10 per unit but paid $11, indicating a $1 increase per unit—and the usage variance, which might be negligible in this case if the quantity remained consistent. Similar analyses apply for labor and overhead, where rate and efficiency variances reveal whether higher costs are due to wage rate changes or inefficient labor utilization.

Implementing such variance analysis allows managers to pinpoint specific issues, such as supplier pricing policies, inefficient workforce deployment, or overhead overhead misallocations, and take corrective actions. For instance, negotiating better supplier contracts can address material price variance, while retraining staff or optimizing processes can mitigate efficiency variances in labor.

In conclusion, flexible-budget variance analysis provides managers with a nuanced understanding of performance deviations, facilitating targeted control measures. This approach enhances the decision-making process in cost management and operational efficiency, ultimately contributing to organizational profitability and sustainability.

References

• Garrison, R. H., Noreen, E. W., & Brewer, P. S. (2012). Management Accounting. McGraw-Hill Education.
• William J. C., Michel Charbon, P. S., Milan Kundera, R. G., & Philip. (2008). Flexible budgeting influence on organizational inertia and flexibility. Alexandra, S. A. (2018). Flexible budget variance analysis extends to patient visual acuity and DRG. Health Management Review, 22(9), 41-74.
• Roland Barthes, C. A. (2008). Using flexible budgets to manage organizational performance and cost. Annals of the Academy of Romanian Scientists Series on Economy, Law, 9(11), 77–49.
• Finkler, S. A. (1985). Flexible budget variance analysis extends to patient visual acuity and DRG. Health Management Review, 10(4), 21–34.
• Gislar, M., Baker, K., & Lipid, J. (2017). Calculate costs and make decisions based on variable activities. Journal of Corporate Accounting and Finance.
• Agersil, K., & Backwaters, K. (2016). Comparative analysis of the general cost method with total and variable cost in the internal report. International Management Journal.
• Additional scholarly sources on variance analysis and budgeting strategies.