Variance in Assessing Performance and Decision Making

This document provides an in-depth understanding of variance in assessing performance and decision making in management accounting. It covers topics such as sales price variance, sales volume contribution variance, material price planning variance, material price operational variance, and the merits and demerits of using variance in assessing manager performance. The document also includes a case study on XLG, a cleaning product company, and discusses the competitive advantage of FamaQ and the increasing demand for chemical X and Y.

Detailed understanding
variance in assessing
performance and
decision making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Sales price variance and sales volume contribution variance..................................................1
2. The material price planning variance and material price operational variance.......................3
3. Change in operation and critical analysis of merits and demerits of using variance in
assessing the performance of managers.......................................................................................5
PART B...........................................................................................................................................7
1. FamaQ gives XLG competitive advantage..............................................................................7
2. Demand for chemical X and Y has increased by 45% which is likely to continue according
to market research........................................................................................................................8
3. The cost of making a unit of Fama Q in the UK is £3 with delivery times reducing by 15
working days................................................................................................................................9
CONCLUSION................................................................................................................................9

INTRODUCTION
Management accounting is the process of analysing internal reports and determining actual
position of business so that it could be assessed that all the plans that were formulated previously
are able to result positively or not. It is very important for all the organisations to make sure that
they are using correct approaches for conducting management accounting on yearly basis
(Agrawal and Cooper, 2017). It is very important to make sure that all the predetermined
objectives are achieved. Present report is based upon XLG which is a cleaning product company
located in eastern Britain. It is producing two different types of cleaning agents which are
chemical X and Y. Present assignment covers various topics such as sales price, volume
contribution variance, material price planning and operational variance and merits and demerits
of using all the variances to asses the performance of performance. Apart from this, the risk
which may take place when the chemical famaQ will be imported and the way in which the risk
could be resolved are also covered in this report.
PART A
1. Sales price variance and sales volume contribution variance
There are providing information’s in order to calculate sales price variance as well as sales
volume contribution variance. This information is related of chemical X and Chemical Y such
as:
Given Information:
Total units sold: 1600
Material price variance: £ 27000 Favourable
Sales and Contribution:
Chemical X Chemical Y
Budgeted total sales 595 units 595 units
Actual Sales Volume 850 units 750 units
Standard sales price £ 35 £ 30
Actual sales price £ 45 £ 37
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Standard margin £ 25 £ 20
Sales Price variance: Sales price variation reflects the discrepancy that has arisen between real
total revenue and budgeted sales revenue dollars as the real price is variable from the money.
Exact revenues that differ from projected cost, mostly because the organization was unable to
sell the budgeted quantity of items or if the current value it obtained was inconsistent from how
it had planned. The variation in selling prices takes into account of disparity in revenue arising
from the disparity in retail demand and normal price (Burger and Middelberg, 2018).
Sales price variance = (Actual price – Standard price) * actual volume
Description Actual Price Standard
Price
Differences Actual
Volume
Sales Price
variance
£ £ £ £ £
Chemical X 45 35 10 850 8500
Favourable
Chemical Y 37 30 7 750 5250
Favourable
Interpretation: Due to measurement, after putting the quantities in the equation, the results of
Chemicals X and Y are obtained and the results 8500 in favor of X and 5250 in favor of Y are
obtained. Differences in revenue are the difference between actual or normal costs, and all X&Y
chemicals are in a great spot for the XLG business to generate.
Sales volume contribution variance: Variation in sales volume (also recognized as variation in
sales quantities) arises whenever the real quantities of goods sold differs significantly from the
normal or planned total number of units selling over a stated amount of time. The difference
between the expected global sales at the minimum price and the regular units were sold at the
typical price can be described as (Christensen and Himme, 2017). When the total amount of unit
sales equals the planned amount of units selling, the difference in sales volume would be
beneficial however if, from the other side, the minimum amount of total sales meets the planned
number of output shipped, it will be undesirable.
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Description Actual sales
volume
Budgeted
sales volume
Differences Standard
margin
Sales volume
variance
£ £ £ £ £
Chemical X 850 595 255 35 8925
Favourable
Chemical Y 750 595 155 30 4650
Favourable
Interpretation: From the above calculation, it was translated that the measurement of the sales
variance requires all products to be positioned as per formula and findings are obtained. Results
are for X, 8925 in a favourable manner and for Y, 4650 positive from estimation market volume
allocation variation. Chemical X is in a more favourable position with respect to the allocation of
sales value.
2. The material price planning variance and material price operational variance
Material price planning variance: A variation in commodity price forecasting is very useful in
providing input on how successful leaders are in predicting the future costs. A design variation
contrasts an initial norm to a updated norm which would and should have been used when
developers understood what was going to occur in preparation (Dobroszek And et.al, 2019).
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Material price operational variance: The operational variance seems to be more important as it
tests the performance of the modern marketplace based on its business circumstances that existed
at the time. It dismisses variables that procurement department could not regulate.
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3. Change in operation and critical analysis of merits and demerits of using variance in assessing
the performance of managers
Variance analysis is the process of analysing the difference between standard and actual
costs. With the help of it, it could be analysed that the estimations that are made by the managers
during the year are able to meet the actual figures or not. With the help of variance analysis, the
top-level executives of companies can analyse the performance of business as well as the
managers. It is one of the effective techniques that could guide the board members to analyse
that the estimations that are made by the managers are able to meet the actual cost and expenses
that have taken place because of execution of all the operations (Egan and Tweedie, 2018). There
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are various types of advantages and disadvantages of using variance analysis for the purpose of
determining the performance of managers. It is very important for the senior authorities of all the
companies to make sure that they are aware of all of them as it may leave impact upon the
organisational strategies that will be formulated for effective execution of future activities. One
of the main benefits of variance analysis for business is that it can facilitate the analysis of actual
position of business. Apart from this it can also help the top management to analyse the
performance of all the managers working within the organisation as higher difference between
actual and standard cost will provide the information of weak estimation skills. It will
demonstrate ineffective performance of the managers. Additionally, when the different will be
low between budgeted and actual expenses will state the managers are performing all their duties
properly.
Advantage
• Another advantage of the variance will be its expenditure-limit value. In the presence of
unfavourable variation managers take action to track equally. Where there are insufficient
explanations for doing so and appropriate precautionary actions are implemented, proof of an
unfavourable variance is evaluated first (Grossi and et.al, 2019).
• The potential adjustment of the sums money earmarked is ambiguity or variability. Even if
there's no reasonable reason for ambiguity in response to an inaccurate budget calculation, the
viewpoints for potential should be revised or revamped.
• Analysis of variance is a useful necessity of surveillance since it emphasizes elements in which
actual interaction fluctuates from predicted operational processes. A further advantage is that
trying to find key elements for which facilities are not used efficiently and factors in which
improvements are needed can be valuable. The analysis of variation therefore promotes
organizational versatility. Examination of variances can also be used to areas increase that costs
exceeded and to determine if the specified structured costs are acceptable (Velte, 2019).
• This strategy has the crucial advantage everything that serves as a control tool. It will become
achievable since this management of the company could become interested to understand what
practices are not going to perform well by wanting to find a difference between real and
generally assumed financial documents. For example, if forecasted revenues of a specific good
are 500 devices even when actual sales are 250 units, then fluctuation will be 250 units (500
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units-250 units). Using this variation, enterprise managers should make successful policies and
ideas to improve sales (Iredele, Ogunleye and Okpala, 2017).
• Another major benefit of this procedure is that corporations can use it to gain competitive
advantage over traditional corporations. It is so since this allows corporate organisations to
become even more constructive in the pursuit of implementing strategic goals and policies. It
also helps executives to be familiar with existing threats and approaches to recover from those
threats. Corporations that pertain this strategy to improve their business are becoming more
profitable but more efficient.
Disadvantage
• Significant delay has been one of the biggest problems relating to variance analysis. This and
that at the end of every season employees just want a review of the variance analysis. For this
motive, accounting personnel are expected to plan this document to every and so every exercise.
As a result, it takes too much time in the whole differential research project. Since managers
often delay making appropriate decisions for this next year but they require to disclose the
financial statements that financial department would provide late. Besides that, analysis of
variance is a beneficial option that is not reasonably priced to all kinds of enterprises. Limited
businesses in general cannot incorporate this strategy in their Monetary Viewpoint performance
review process (NICOLETA, 2019).
Establish standards of reason for deviation in financial statement are not widely available. Each
of which accountants and auditors can go through various data sources, including such labor
rates, inventory billing and much more. Each of these resistance values evaluation of variances in
complicated problems less efficient.
• This approach is not useful for multi-financial reasons other than certain disadvantages. To
have an examination, it explores only economic concerns. And also the study of variances, there
is no detailed survey of any particular element. It only provides financial information relating to
pleasant and unpleasant variances. Manager will find out wide range of information for a proper
description.
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PART B
1. FamaQ gives XLG competitive advantage
The research section includes the critical assessment of the possible alternatives for XLG
adopted in this research. Company XLG is the manufacturer of marketed Chemical X and Y
cleaning agents and operates in a competitive environment. The core competency for the product
is patent protected against competition by all this. Hardly any corporation competition can copy
Fama Q. XLG also gets comparative advantages with this good or service. As stated in the case
company XLG imported goods Fama Q form Brazil and yet owing to lock-down, Coronavirus
break-out and enforced travel project prohibitions it has now become important when carrying
goods from one place (Octavia, 2019). This is true that Fama Q provides the XLG firm a
competitive advantage as it is the supplier's strongest cleaning agent and XLG takes protection to
protect its UK dominant market position from the rivals. With the Chemical X, the selling price
difference is £8500 and it's in a good position and for Chemical Y it is £5250 this seems to be in
preference.
2. Demand for chemical X and Y has increased by 45% which is likely to continue according to
market research
Prices for Chemical X and Y is increasing by 45 percent, so companies must also
commence their output according to marketing strategies because they need to stop buying
Brazilian consumer goods. The company but also any government minister who has to endure is
affected by the suspension operation in the country and around the world. Existing average cost
of the preservative is £2.50 per module, and besides owing to this global epidemic condition it
will improve the unit cost of £ 4.50 per group and then as a matter of fact XLG supplier will
have to pay £ 3.70 per unit to Fama Q. It will minimize the profitability of a company but that is
not worthwhile regarding the air mobility of capital intensive substrate. Business now wishes to
create fama Q in UK, rather than importing fama Q. It is also mentioned in the case study of
XLG that it is likely that demand for chemicals y and X may improve by about 45 percent thus
according changing market analysis (Rosenthal, 2019). This is therefore important for analyzing
potential alternatives for corporations and their implications on market over the coming time
frame on the premise of all the above knowledge. Appropriate assessment possibilities in the
present situation are quite essential to assessing the quality and credit worthiness of business
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planning. In this situation , in order to maximize their amount of profit, individuals must keep
selling raw materials from Brazil and find their replacement or producing themselves in the UK
to manage their costs. So even though original film prices rising owing to increasing shipping
costs, this can minimize demand or minimize the amount of profit for XLG organization as well.
3. The cost of making a unit of Fama Q in the UK is £3 with delivery times reducing by 15
working days
Making a product in the United Kingdom minimizes overall costs as well as reducing
timely delivery, that's quite significant in helping monitor too much persons. Since present an
increase manner, several companies or corporations that can provide services and products at
cheaper cost. Whenever industry gets extremely low costs and makes Fama Q divisions in the
UK then they'll have to repeat the process and keep selling from Brazil before the predicament
becomes acceptable.
XLG management is actively charging £3.70 to Fama Q and if they keep manufacturing in
the UK they will have £ 3 cost of production that takes 15 days shorter time to manufacture.
XLG retailer started to extend its reliance and initiate manufacturing products internationally as
it helps reduce costs by decreasing infrastructure and insurance premiums penalties (Setiawan,
Rahmawati and Widagdo, 2019). Work production from elsewhere in the UK not only takes
almost all hours at work that could aggravate the employee to place the order. In this pandemic
scenario, after considering all the variables and considerations that correspond to the further
operational costs and thereby boost the wholesale price, managers need to understand and make
strategic decisions that they should always implement with regards to the organization in order to
safeguard their performance and competitive value of goods and services. Lookdown satiations
develop considerable complications for the community where sustainability reporting seems to
be very impossible, employees find it hard to keep certain employers security and income
producing corporations. In this way necessary, it is the movement's perfect hope to protect its
performance (Situngkir and Napitupulu, 2019).
CONCLUSION
It has been observed from the current discussion that developing economic climate provides
various conflicts along with problems through support the growth and profitability of the
business. Utilising accounting principles, managers will make appropriate important decisions
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according to the exceptional cases that the organization is facing. Managers must consider the
competitiveness scenarios in business functions by inventory valuation and inventory variations,
and often evaluate what behaviour is in favour in performance or not. That each system is
influenced in the lockdown conditions, though it's important to acknowledge the conditions and
come up with possible solutions to reclaim from this tricky situation.
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