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

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