Variance Analysis in Management Accounting

LCBB5002

INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Calculation of price and sales volume contribution variance..................................................1
2. The calculation of material price planning variance and material price operational variance 3
3. Changes in operational, critical analysis of merits and demerits of using variances in
assessing managers performance.................................................................................................4
PART B...........................................................................................................................................7
Report assessing the decision to make famaQ in house in the UK to keep importing it from
Brazil............................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is an approach which is used by most of the entities for the
purpose of tracking business performance and formulating future decisions. With the help of it,
the managers will be able to decide that whether they have to make changes in organisational
policies or not. There are various internal stakeholders such as employees, manager, board
members, shareholders etc. who use management reports so that they can determine that the
entity is performing properly or not (Adler, 2018). This report is based upon XLG company
which is a cleaning product entity and it is located in eastern part of Britain. There are two
different cleaning agents that are produced by the organisation These are two different chemical
which are X and Y. The competition in the industry for the enterprise is very high. Due to
lockdown because of corona virus the entity planned to move all its sales online. For this
purpose, different aspects will be analysed. These are calculation of variances such as sales price
and volume, material price planning and operational variance and analysis of merits and demerits
of using them in assessing the managers performance. Apart from this, a brief report that
assesses the decision to make famaQ in house in the UK or keep importing it from Brazil is also
prepared in this report.
PART A
1. Calculation of price and sales volume contribution variance
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
1

Standard margin £ 25 £ 20
Sales price variance:
Sales price variance is equivalent to the change between real sales at market price and
estimated sales at target price (Bromwich and Scapens, 2016). Average sales are the sum of the
units currently sold as well as the average price per unit. Similarly, actual sales at the budgeted
level match the total of the units sold and the price per unit budgeted.
Chemicals X Details Amount
Sales Price Variance ( X ) ( Actual Price – Standard Price ) * Actual Unit
= ( 45 – 35 ) * 850 8500
Favourable
Chemicals Y
Sales Price Variance ( Y ) ( Actual Price – Standard Price ) * Actual Unit
= ( 37 – 30 ) * 750 5250
Favourable
What is the total variance?
Sales volume contribution variance:
Sales Volume Variance is the calculation of benefit or expense adjustment as a result of
the discrepancy between real and budgeted volumes of revenue (Eldenburg, Krishnan and
Krishnan, 2017).
Formula:
Sales volume contribution variance = (Actual number of units sold × Budgeted price per unit)
– (budgeted number of units sold × Budgeted price per unit)
Chemicals X Details Amount
2