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 …show more content…
Costs are the major problem why the company cannot reach the standard level of profit. Costs include three parts, the direct materials, direct labour and the variable overhand. The direct materials of product can be raise from any of the following issues. The incorrect measured causes material overuse; the extra amount of scrap during the production process; the quality of the raw material purchased causes more units of raw materials being needed than budget; the damage of material during the transit. All these factors could happen during the production process so that the actual result of total direct materials is unfavourable. Direct labour is the second respect, the unfavourable variance means that the cost of labour was more expensive than expected. From the report, it state clearly that all of the labour are unfavourable. There are several reasons causes of a high labour variance. For example, staffing variance, a labour standard may hold that appoint the mission, different people may have different task according to their labour rate, however, the profession worker with high skilled may also do the job even though the standard is