Factors to Consider in Variance Analysis and Flexible Budgeting for Financial Management - Desklib

This article discusses the factors to consider in variance analysis and flexible budgeting for financial management. It provides insights on preparing a flexible budget based on original budgeted unit costs and selling price, and interpreting the variances produced. The article also highlights the importance of interdependence of variances and suggests ways to reduce production costs. The study material includes references from various books and journals.

PART C

Financial Management
Question 1
(a) Advise Nelson & Drake which factors should be considered when deciding which variances
to investigate
The variances analysis is defined as the method which is used by way of calculating different
kinds of costing variances or through quantitative analysis of the difference between the actual
performance and the behavior which has been planned by the organization. Furthermore, the
analysis is used to understand the impact of the industry and where they stand in the market (Esau
and Farooque, 2019). For Nelson and Drake, the factors which need to be considered to avoid any
kind of loss or adverse situation, which may impact the position of the company, could be sales
which were identified at $1080 and costs relating to the ingredients purchased, labor costs, fixed
overheads.
(b) Prepare a flexible budget (for the actual quantity sold in the month just ended) based on the
original budgeted unit costs and selling price.
Flexible budget is type of budget that is prepared after adjusting the actual changes that occurs.
Unlike static budget it adjusts with the current element.
standa
rd actual VARIANCE
sales 1000 1080 80
favora
ble
cost
ingredie
nts 400 520 120
advers
e
labor 100 110 10
advers
e
overhea
d 300 340 40
advers
e
profit 200 110 -90

Interpretation of the flexible budget: From the actual data it can be evaluated that the sales of the
company is better than estimated one. But the cost incurred for doing the sales is way more than
estimated. The organization need to work on cost and expenditure on production. It can be done
by employing efficient technology and skilled labor. Cost is way to high therefore company is
suffering loss.
(c) Provide a commentary on the variances you have produced
Variance analysis to all the production costs, it is very important thing every variance does not
show a separate isolation. Every variance in one way or another variance is interdependent. The
labor variance may be always positive because lower workers are being utilized. The material
variance is an unfavorable because the consumption of material is very high.

REFERENCES
Books and Journal
Esau, T. J. and Farooque, A. A., 2019. Economic and management tool for assessing wild blueberry
production costs and financial feasibility. Applied Engineering in Agriculture, 35(5), pp.687-696.
Fadun, O. S. and Oye, D., 2020. Impacts of operational risk management on financial performance: a
case of commercial banks in Nigeria. International Journal of Finance & Banking Studies, 9(1).
pp.22-35.
Kim, C. and Park, J. C., 2019. Policy uncertainty and the dual role of corporate political
strategies. Financial Management, 48(2). pp.473-504.
Maxfield, S. and Wang, L., 2021. Does sustainable investing reduce portfolio risk? A multilevel
analysis. European Financial Management, 27(5). pp.959-980.