Variance Analysis in Management Accounting

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
PART A...........................................................................................................................................1
i) Sales Price variance and the sales volume contribution variance............................................1
ii) Material Price Planning Variance and the Material Price Operational Variance....................2
iii) Critical analysis of variances to analyse the performance of managers.................................3
PART B...........................................................................................................................................6
Report discussing over making in house production or to import from Brazil...........................6
REFERENCES................................................................................................................................9

INTRODUTION
Management accounting is also called managerial accounting and is defined as the process
providing the financial information and the resources to managers in decision making. MA is
used mainly by internal management team of organisation and this makes it different from
financial accounting. MA focuses over accounting for providing information about the
operational business metric. It enables the manager to make effective decisions based on the
information provided by the company. Current report is based over XLG which is cleaning
product making company of Britain producing two cleaning agents. It has maintained leading
position in the market due to its solution famaQ. After the broke out of corona virus its
maximum sales were moved online. Also due to the pandemic prices of most of the goods have
risen. Report provides about the different variances to assess the efficient of managers. It also
wants to assess whether it should go for in-house making or to import it from Brazil only. Report
will enhance the understanding about variances and their importance in organisation.
PART A
i) Sales Price variance and the sales volume contribution variance
Sales price variance
The variance measures change in the sales revenues as result of the variance between
standard and actual selling prices. Actual sales could differ from the standard sales due to rise in
demand of the product. It can be due to several factors such as change in customer preference or
change in trend. It quantifies difference in the sales which results from different in the standard
price and market price.
Sales volume contribution variance
It measures the revenues brought in for company over actual sales volume against the
budgeted sales volume projections (D'Onza, Greco and Allegrini, 2016). It helps the business in
making more accurate estimate of revenues that products will be bringing in future.
Calculations
Sales and Contribution
X Y
Total Sales 595 595
Actual sales volume 850 750
Standard Sales Price 35 30
1

Actual Sales price 45 37
Standard Margin 25 20
Sales Price Variance
(Actual price * Actual units sold) - (Standard price * Actual
units sold)
(45*850)-
(35*595)
(37*750)-
(30*595)
17425 9900
(Actual Price - Standard price) * Actual unit (45-35)*850 (37-30)*750
8500 5250
Sales volume contribution variance
Actual sales units -Budgeted sales units * Standard unit
profit
(850 - 595) *
25
( 750 -
595 )*20
6375 3100
ii) Material Price Planning Variance and the Material Price Operational Variance.
Material Price Planning Variance
Planning variance are used for measuring extent to which original standards are required
to be adjusted for reflecting the changes in operational conditions between current situation and
one envisaged at time of calculating the standards.
Material Price Operational Variance
Operational variances indicate extent to which the attainable targets are achieved. The
operational variance is calculated after planning variances are established and this is more
realistic manner of assessing (Marzlin Marzuki and Ismail, 2019). Both the variances play an
important role in assessing the performance of company and its managers.
Calculations
Material Price
X Y
Actual sales volume 850 750
Standard Price 2.5 2.5
2