Management Accounting: Calculation of Variances and Make-or-Buy Decision

LCBB5002
MANAGEMENT
ACCOUNTING – 2

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Part A......................................................................................................................................................3
Part B.....................................................................................................................................................10
CONCLUSION........................................................................................................................................13
REFERENCES........................................................................................................................................14

INTRODUCTION
The management accounting (MA) is known as a form of accounting that is associated to
handling monetary and non-monetary resources in a manner so that corrective actions can be
carried out for decision making (Cescon, Costantini and Grassetti, 2019). This accounting
contains a range of techniques and variance analysis is considered as one of the key approach
which is connected to compare actual data with financial projections. Majority of executive of
companies, rely on this method in order to take viable financial judgments. In the report a case
study has been discussed which is based on calculation of variances and suggesting a suitable
alternative to XLG plc. The project report is based on two tasks which are A and B. The part A
contains information related to calculation of different kinds of variables have been done. While
in part B, detailed information regarding to selection of an alternative has been done by using
appropriate methods.
MAIN BODY
Part A
(i) Computation of the Sales price variances and sales volume contribution variances:
Sales price variance: The variance in the selling price means a discrepancy between real and
expected sales arising from a change in commodity price (Labrador and Olmo, 2019).
Sales price variance = (Actual Price – Standard Price) * Actual Unit
The value of negative variance indicates that actual price is shorter as compared to projected
prices. On the other hands, positive variance shows that actual prices are more than estimated
prices (Dai, Free and Gendron, 2019). By help of this variance, it becomes easier for companies
to know about level of price on which they can sell their items.

Sales volume contribution variance: It is the disparity between the real and expected amount of
sales units, multiplied by each unit 's budgeted price.
Sales volume contribution variance = (Actual no. of units sold × Budgeted price per unit) –
(budgeted number of units sold × Budgeted price per unit)
The unfavorable deviation means that the amount of units currently delivered is less than the
number of units budgeted for sale (Taschner and Charifzadeh, 2020). There, the planned amount
of units sold is created by executive in sales and marketing, which focuses on their estimation of