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Variance Analysis For Video Tech Ltd
hnd in business management (bbm1)
ESOFT Metro Campus
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Variance Analysis For Video Tech Ltd
8 Pages / 1,792 Words Published On: 30-08-
Variance analysis is a crucial management accounting technique which involves the comparison of the standards numbers to the actual performance numbers (Ward, 2012). It is to be noted that there are different Category Of Variance Analysis, and same could be computed for both the quantity and price of materials, labour rate, labour efficiency and variable overhead, and there reporting of results is done to the management of an enterprise. Each of the variances has its own importance depending on the objective of the analysis, as undertaken by the management (Corporate Finance Institute, 2022). On the analysis of these variances, companies are able to use the information for the identification of problem areas in performance as well as making strategic changes therein for the improvement of the overall company performance. The following are presented the different variances for entity Video Tech Ltd for different variables.
a) Direct labour rate variance
Description
Actual hours (a)
Actual costs (b) Standard rate Actual rate (b/a)
Variance = (Stadard rate- Actual rate)*Actual hours
Assembly 3900 $ 93,600 $ 24 $ 24 $ -
Printed circuit boards
2400 $ 71,280 $ 27 $ 29.
$
-6,480.
Reading heads 3500 $1,15,500 $ 30 $ 33.
$
-10,500.
Total
$
-16,980.
b) Direct labour efficiency variance
Description
Actual units (a)
Standard hours (b)
Total Standard Hours (a*b)
Standard rate
Actual hours
Variance = Stadard rate* (Standrad hours -Actual hours)
Assembly 2200 2 4400 $ 24 3900 $ 12,000.
Printed circuit boards
2200 1 2200 $ 27 2400 $ -5,400.
Reading heads 2200 1 3300 $ 30 3500 $ -6,000.
Total $ 600.
c) Direct material price variance
Description Standard cost per unit
Actual quantity (a)
Actual total cost (b)
Actual costs per unit(b/a)
Variance = Actual quantity* (Standrad price -Actual price)
Housing $ 20 2200 $ 44,000 $ 20 $ -
Printed circuit boards
$ 15 4700 $ 75,200 $ 16.
$
-4,700.
Reading heads $ 10 9200 $ 1,01,200 $ 11.
$
-9,200.
Total
$
-13,900.
Variable overhead spending variance = $ 1,000.
f) Variable overhead efficiency variance
Actual hours = 9800
Standard allowed hours = 9900
Standard rate = $ 2.
Variable overhead efficiency variance = Standard rate x (Standard hours allowed - Actual hours)
Variable overhead efficiency variance = $ 200.
g) Sales price variance
Budgeted selling price = $ 300.
Actual selling price = $ 300.
Actual units sold = 2200
Sales price variance= (Budgeted selling price -Actual selling price)*Actual units sold
Sales price variance= 0
h) Sales volume variance
Budgeted selling price = $ 300.
Budgeted sale units = 2000
Actual units sold = 2200
Sales price variance=
(Actual units sold- Budgeted sale units)*Budgeted selling price
Sales price variance= $ 60,000.
Direct Material price variance (13,900) Unfavourable
Direct Material quantity variance (8500) Unfavourable
Direct Labour rate variance (16980) Unfavourable
Direct Labour efficiency variance 600 Favourable
Variable overhead spending variance
1000 Favourable
Variable overhead efficiency variance
200 Favourable
Contribution margin volume 16200 Favourable
note that a variance analysis is regarded as efficient only when it involves both the quantitative as well as the qualitative aspects (Drury, 2018). Thus, it is the duty of Robert Smith to enlighten the management with the actual reasons that has led to the variances in the performance and not let management to make its own conclusions. This is because such a conclusion could be inappropriate as each and every departmental manager would try to hide its own efficiencies of the performance. In addition it has been observed that the primary reason for variance as elaborated by Robert Smith is in form of inefficiency of the direct labour. While there are additionally issues in term of material usage as well as the maintenance issues that led to the equipment downtime for some departments. Thus, the report of Robert Smith not only lacks the completeness in terms of absence of reasons of variances, but also there has been an inefficient information as key reasons for variances are not highlighted and only one issue is focussed.
Description Static budget Flexible budget Actual budget Variance
Units 2000 2200 2200 0
Sell price $ 300 $ 300 $ 300 $ -
Revenue
$
6,00,000.
$ 6,60,000 $ 6,60,000 $ -
Variable costs:
Direct Material
Housing units $ 40,000 $ 44,000 $ 44,000 $ -
Printed circuit boards $ 60,000 $ 66,000 $ 75,200 $ -9,200.
Reading heads $ 80,000 $ 88,000 $ 1,01,200 $ -13,200.
Total Direct Material
$
1,80,000.
$ 1,98,000 $ 2,20,400 $ -22,400 (U)
Direct labour
Assembly $ 96,000 $ 1,05,600 $ 93,600 $ 12,000.
Printed circuit boards $ 54,000 $ 59,400 $ 71,280 $ -11,880.
Reading heads $ 90,000 $ 99,000 $ 1,15,500 $ -16,500.
Total direct labour
$
2,40,000.
$ 2,64,000 $ 2,80,380 $ -16,380 (U)
Variable overhead $ 18,000 $ 19,800 $ 18,800 $ 1,000 (F)
Total variable costs
$
4,38,000.
$ 4,81,800 $ 5,19,580 $ -37,780 (U)
Contribution margin
$
1,62,000.
$ 1,78,200 $ 1,40,420 $ -37,780 (U)
References
Corporate Finance Institute (2022) The role of variance analysis [online] Available from: corporatefinanceinstitute/resources/knowledge/accounting/variance- analysis/ [Accessed on: 20 January 2022].
Drury, C. (2018) Cost and management accounting. Australia: Cengage Learning.
Ward, K. (2012) Strategic management accounting. UK: Routledge.
Variance Analysis For Video Tech Ltd
Course: hnd in business management (bbm1)
University: ESOFT Metro Campus
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