...Week 6 Problem Flexible Budget and Variances NOTE: It is expected that this problem will be completed using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab. The Grant Company had developed a Static Budget for 2005 for one of its major departments. By the end of the year, the owner was quite pleased since he knew that sales were running above the projections. He was confident that 2005 was going to be the best year ever for this important part of the company! When the 2005 financial statements were completed, it was discovered that the gross profit for the department was lower than had been originally projected. But sales were up! What happened? You have been hired to determine why 2005 was not a "banner year"! You have been supplied with the original Static Budget and the actual results as follows: Static Budget Actual 2005 Figures Units Sold 10,000 11,000 Revenue $1,000,000 $1,078,000 Material 300,000 350,900 Labor 250,000 247,500 Variable Overhead 150,000 194,700 Fixed Overhead 200,000 195,000 Gross Profit $100,000 $89,900 You are also provided with the following information regarding standards and actual results: Standard Actual Selling price $100 per unit $98 per unit Cost of materials $15 per foot $14.50 per foot Materials per unit 2 feet per unit 2.2 feet per unit Labor rate $25 per hour $30 per hour Labor usage 1 hour per unit 0.75 hours per unit Variable overhead rate $30 per...
Words: 399 - Pages: 2
...Variable Variance Report: Beginning the Road to Precision in Variable Planning Oh, bemusing variance report! However will I explain to Bob Schuler, Hahnemann Hospitals’ vice president, the ineffectiveness of my plan, how my supplies came in under budget and salaries were overextended during my first thirty days in the department?! I had hoped the variance percentages would be consistent with the unexpected revenue created by the increased patient volumes we experienced last month - but that could only explain the salary end of things because supplies and procedures didn’t increase. Furthermore, since patient volumes increased, it would make sense that more supplies would be used and more staff would be on-site, prepared for higher volumes - just as the busy times of the hospital were predicted in prior flexible budgets and analyses. (But supplies were reported as lower than expected which doesn’t match up) If I know Mr. Schuler, he is going to be very angry about quality control if I cannot figure out why my supplies were less than estimated and even more livid if we were detrimentally overstaffed; my job may even be in jeopardy! Calm down! Breathe. As I type, I am beginning to believe these variances are not my fault at all. But, I had never imagined switching from the fixed to variable expense department would include such a string of headaches. I must rise to this challenge and pull out every stop in my detection-correction plan while investigating these variances. Although...
Words: 1082 - Pages: 5
...Variance Analysis A manager of a variable hospital department has many responsibilities. The manager is accountable for budgeting and to protect profits. The financial manager is responsible for guarding overspending and generating profits. They are active in the budgeting process throughout the fiscal year. The budget department manager communicates with other managers, and accounting departments concerning budget issues, financing, and concerns in the organizations departments. Sometimes situations occur whereas payroll salaries are high and supplies are lower than planned and budgeted. The budget manager is responsible for providing feedback about finances, revenue, and any potential variances in the budgeted costs. This essay will be based on a scenario of salaries that were higher and supplies lower than initially budgeted. This paper will explore variances in the scenario mentioned earlier, and explain the relationship between variance reporting, interpreting variance reporting results, and the results of performance within a health care organization. The hospital variable department has experience a case in which employee salaries are higher than budgeted, while the supplies are lower than initially budgeted. This is the result of an epidemic of asthma patients who were admitted to the hospital over the last three months. The hospital approved overtime to assist in the growing number of patients and to accommodate their needs. In the process of caring for patients more...
Words: 866 - Pages: 4
... changes in prices, and changes in how effectively resources are managed. 10-4 As noted above, a difference between the budget and actual results can be due to many factors. Most importantly, the level of activity can have a very big impact on costs. From a manager’s perspective, a variance that is due to a change in activity is very different from a variance that is due to changes in prices and changes in how effectively resources are managed. A variance of the first kind requires very different actions from a variance of the second kind. Consequently, these two kinds of variances should be clearly separated from each other. When the budget is directly compared to the actual results, these two kinds of variances are lumped together. 10-5 An activity variance is the difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference in the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget. Caution should be exercised in interpreting an activity variance. The “favorable” and “unfavorable” labels are perhaps misleading for activity variances that involve costs. A “favorable” activity...
Words: 824 - Pages: 4
...Assignment 1: Variance Analysis Report In order to perform a variance analysis report Jenkins calculated the actual revenues and expenses and found the difference which was $296,610 in profits. Then Jenkins did the same with budgeted values and found the budgeted profits to be $606,350. The variance amount in turn is $309,960 under budget. Also, the variance amount for revenues is $32,100. This number is favorable due to the fact that they made more than what they had budgeted for. But on the contrary, the variance amount for expenses was $342,060, which was unfavorable because they spent far more than what they had budgeted for. This information would not be sufficient in order to explain to Norton why their profit percentage is nearly half of what they budgeted. This variance analysis report only shows the raw numbers and not any details to why they spent more on expenses than what they budgeted. Jenkins would have a difficult time explaining details to why they went over budget. She would need to show him a detailed expense report of the budgeted items and the actual amount they spent on the items. Then she would have to clearly define which items went over budget and why. This variance analysis report would not help Jenkins in the 8 am meeting she has would need to provide more information. Assignment 2: Preparing the Budget: Variance Analysis Report In order to provide more information to Norton, Jenkins will need to perform a variance analysis report. Jenkins would...
Words: 1691 - Pages: 7
...9/1/13 Tirizia York Variance Analysis A variance report involves a way for business executives and department managers to approximate their company’s performance. By examining one set of figures against another, and comparing the planned amount to an actual amount. In the proceeding paragraphs, I will explain how to give a detailed variance report analysis to the vice president of the hospital where I work at, explaining the factors that led up to my salaries for the previous month being higher than the supply figures on my budget reports. It’s the beginning of the month and as I sit at my desk reviewing my previous month’s budget report, I see where my budgeted salaries in my department alone are higher than the supply cost for the previous month. Then while sitting there it comes to me that I have a variance report due to the vice president of my department next week, where will have to give an explanation as to how for the month of June my salaries are higher than my supplies. I see this is going to be a long day so off to the break room to grab a cup of water, and my coffee close my office door and turn on some soft music and” let’s get started”. The first thing on the agenda is to is to run an analysis report that shows the number of employees worked and production along with what supplies were used and the costs of the supplies used. After importing the data on my excel spreadsheet and reviewing the items in red are representing variances with a plus or minus...
Words: 783 - Pages: 4
...Variance Analysis Blake Richardson Grand Canyon University HCA-240 March 16, 2013 Variance Analysis To really understand this paper, one should understand what variance analysis does for the entity. Variance analysis is the process of examining every variance between what is actual and budgeted or expected and standard cost to develop reasons as to why the budgeted results were not met. In hospitals, there are many different factors that a financial manager should consider before submitting a variance report to the vice president of the entity. These factors can include staff receiving too much overtime, hired too many staff members for the increase in patients, and maybe even one of the staff members forgot to scan in all of the equipment. Once the problem is recognized and determined it is sent up the chain of command, where the variance reports are interpreted and the expected results are given. In this setting, there could be quite a few factors that had potentially created higher salaries and lower supplies. To determine this we need to look at the changes in input prices, productivity and the changes in departmental volume. (Cleverley, Song, & Cleverley, 2011, p. 386) For a manager to be able to determine this they should first recognize the problem, determine the cause, and then correct the problem. Looking at the efficiency cost, we can determine how long it has been going on for, the loss per time unit, and if the problem is correctable. Once the...
Words: 821 - Pages: 4
...Report of Washington Cedar Furniture Ltd for quarter ending 30 June 2017 According to the Budget report of Washington Cedar Furniture Ltd for quarter ending 30 June 2017, the flexible budget variance shows the difference between actual and budget figures. For this quarter, from the operating profit line, it has clearly indicated that the operating profit flexible budget variance is 99405.56 unfavourable which means the actual profit is lower than expected. The operating profit is the result of contribution margin minus fixed manufacturing costs. Therefore, the following factors can influence the profit, total sales revenues, total direct materials, total direct labour, and variable overhead. Revenue, the most important part of the operating profit, directly impact on...
Words: 727 - Pages: 3
...The purpose of this memo is to define the context I used to perform a variance analysis of the massage chairs manufactured to determine if the standards are being met. After Mr. Kane reviews the contents of this memo along with the variance analysis, he will be able to whether or not the standards were met in the production of the massage chairs. (Zimmerman, 2014) states “Variances provide useful information for managers in gauging whether the production system is operating as expected.” The task was to perform a variance analysis of the massage chairs by calculating all materials and labor variances. In addition to the summary and analysis of both the standard and actual cost, I am to ask for clarification of any variances that need to...
Words: 395 - Pages: 2
...Stacy Raudman 000202145 JET2 Task 2 A1 Discuss budgetary areas that raise concern in the budget planning In any business, a budget serves a specific purpose. It serves as a forecast of money coming in and money going out which then shows whether or not there is a profit. It also serves as a tool for making decisions. And, lastly, it is a means to monitor how a business is performing. Watching for profits and/or losses, will tell a company if their strategies are working or not and whether they should move in a different direction for improvement. Money, in any business, needs to be controlled and decisions need to be made on where is best for that money to be spent in the best interest of the company. Monitoring how a business is performing can tell management or investors if the company is living up to their expectations. If it isn't, the company can have the opportunity to move in a different direction for improvement. In reviewing the budget and proforma statement for Competition Bikes, there are a few areas of concern which are discussed below. In 2006, the company sold 3000 units and had a nice increase in sales in 2007 to 4000 units. In year 8 however, there was a decrease in sales down to 3400 units. The company is forecasting sales in 2009 to be 3510 units and continuing increasing the following two years as well. Due to the stated economic decline and cut back on sponsors that pay for bikes for professional riders, the company is anticipating...
Words: 1665 - Pages: 7
...presented her analysis for August production to the plant manager, Wentao Chen. According to this report, the main difficult the plant is facing is being able to hire enough people to get the production to the 200000 units per month budgeted, despite having increased wages by a 30%. Questions 1. A. Total expected Cost – 41,140,000$ for 200,000 units ------------------------------------------------- Cost per unit – 205.70$ B. Actual Cost – 3,8148,000$ for 180,000 units ------------------------------------------------- Cost per unit – 211.91$ 2. The flexible budget variances can be seen in Appendix1. According to the results, there is an overall unfavourable variance of 1048.2$. this means, that even if production has been 180,000 instead of 200,000, there is still a variance NOT EXPLAINED by the reduction in volume. The colours in appendix one represent whether the impact of the variance is positive (green) or negative (red). It can be seen, that assembly and packaging represents the highest variance (70% of the total) with flash memory in second place. This results are in line with what Jianye Ma stated as the greatest concern of the firm We cannot find people to hire even though we have raised our factory wages by almost 30%. On the other hand, the variance in the flash memory is due to the instalment problems that are also commented on the text. The most positive variance...
Words: 689 - Pages: 3
...SESSION 2013/2014 BKAL3063 INTEGRATED CADE STUDY ”CASE 2: LUOTANG POWER : VARIANCES EXPLAINED” GROUP : L (3) PREPARED FOR: PROF. MADYA. DR. ENGKU ISMAIL B. ENGKU ALI PREPARED BY: NURIN NAZMIN BT AHMAD FISOL 207704 TENGKU NADIRAH BT TENGKU DANIEL 207733 SABIRAH BT ABDULLAH 207783 NAJIHA BT MOHD MISBAHHUDDIN 207785 NUR AMALINA BT ABD GHANI 207791 SUBMISSION DATE : 06 OCTOBER 2013 Table of Contents 1.0 INTRODUCTION 4 2.0 MAIN ISSUE 5 3.0 FINDINGS 7 4.0 STANDARD COST 12 5.0 RECOMMENDATION 13 6.0 CONCLUSION 15 1.0 INTRODUCTION Tan Min Yi who was the general manager of Luotang Power, a coal-fired power plant located in central China. He should make a presentation to the Board of Directors of his parent company, China Hua Tong Power (HT Power). Tan knew that his company had performed well during that year, both plant availability and fuel economy improved over the previous year but it just didn’t show up in the financial report. Hubei Provincial Power Company (HPPC) was the primary customer of Luotang that had made a contract for a minimum annual purchase of total electricity of 3,000,000MWh every year. However, there had been limited opportunity to sell energy above the contractual minimum, either to HPPC or others. If the amount of sell would be reduced, the contract required that Luotang sell amounts in excess of minimum annual purchase at approximately 65% of regular price. Luotang also made...
Words: 2706 - Pages: 11
...Boston Creamery 1. The variance analysis schedule that Frank Roberts proposed was not necessarily the best representation of the variances for Boston Creamery. Roberts’ report stated a favorable variance of $71,700 coming mainly from sales volume. He used the revised budgeted operating income and the original budgeted income to come up with the sales volume number. The budget was not detailed as to what accounted for the differences though. That would be the first change to the variance analysis report, provide a clearer depiction of the results. He should show the effect of the changes in market size. The market size variance was actually 117,642 favorable (5,968,366-5,720,329). The suggestions offered by Jim Peterson can be incorporated into the schedule without being too technical. There may be a lot of numbers but the results are far more informative. By also looking at month to month changes to sales and operational costs they would have a better estimate and the figures would be available sooner rather than waiting until the spring of 1973. John Vance’s appendix breaks the profit planning analysis down month by month and he shows the importance of tracking actual results. For example, in January 520,000 gallons of ice cream were actually sold. They based the analysis on the forecast of only 495,000 gallons. The actual revenues for January are $28,875 under the forecast for the actual sales. The earnings statement, which is Exhibit C in the Appendix...
Words: 340 - Pages: 2
...Learning report. This text is based on the ‘Modelling Asymmetric Co-movement of Asset Returns’, authored by Kenneth F. Kroner and Victor K. Ng published on Review of Financial Studies, Vol.11, No.4. 1998. The paper questioned the utilization of various time-varying co-variance models since these models have much too restrict formations in the pattern of how the stock performance in the history impacts the estimated, and thus forecasted, co-variance matrix. The paper examined four types of most widely adopted variations of GARCH model and exhibited how they could obtain very different results based on the same observations. This fact exhibited the substantial model risk when applying these GARCH models and it is naturally going to impact whatever application of the GARCH models, such as portfolio optimization where the forecasted co-variance matrix plays a very important role. Based on the finding, the author provided a general form of model which includes all four types of GARCH models. According to the report in the paper, the loosened constraint would make the estimation of the model more robust. An empirical test was implemented on the dynamic between the stock returns of the big size and small size companies to confirm the conclusion. The four GARCH-variable type models include: 1. VECH The VECH model has the following pre-defined form: Perhaps the mostly mentioned edge of the VECH model is its simplicity which is virtually a ARMA(1,1) model for the error items...
Words: 1112 - Pages: 5
...Based on the variance/diversion report of the TAFE Island Holiday Resort, me and my business partner have interpreted the figures listed in the report and have offered remedies to improve their budget performance. This is their income report: Income Actual Budget Variance TAFE Restaurant $233,278 $205,000 $ 28,278 TAFE Bar $ 36,500 $ 51,300 $ (14,800) Island Coffee Shop $ 14,000 $ 18,500 $ (4,500) Room Service $ 1,840 $ 4,450 $ (2,610) Total Income $285,618 $279,250 $ 6,368 Based on this report, we can tell that a certain area of the resort has exceeded the budget therefore having a variance of $28,278. Because of this the resort should be more considerable with their budgeting judgment. They should plan, organize their budget and even motivate their staff in making decisions well. They can also start making another budget plan in this section of the resort. They can use a zero budget system to clearly detect inflated budgets in the beginning of the financial year. The resort should control their budget by checking income and expenditure at regular intervals and identifying and reporting the deviations. As for the other sections of their resort, there is no need for any change. It is because the incomes and the variances did not exceed their targeted budget. Therefore, they can save more if they continue. They only need to improve the budget and income of the TAFE Restaurant. Included in the report is their expenses...
Words: 671 - Pages: 3
