Contents INTRODUCTION...........................................................................................................................3 MAIN BODY..................................................................................................................................3 Part A:..........................................................................................................................................3 Part B:..........................................................................................................................................8 CONCLUSION..............................................................................................................................11 REFERENCES..............................................................................................................................13
INTRODUCTION The financial transactions of a company need to be recorded in an effective manner so that better decisions can be carried out. In this aspect management accounting (MA) plays a key role as this is linked to analysing, interpreting financial and non-financial data in a systematic way so that managers can get needed data at the time of decision making (Chorley, 2019). The project report is based on a company which is XLG, this company produces different types of cleaning products and sell all around the United Kingdom. On the basis of provided information about company, part A and B are covered in report that consists distinct information. In part A, information about calculation of different variances along with merits and demerits is included. While part B analysis is done about whether company should apply make product at home or import from other nation. MAIN BODY Part A: (i) Sales price and volume contribution variance. Sales Price Variance- This variance can be defined as difference between actual sales of market price and actual sales at budgeted price. In accordance of given data, calculation of this variance has been done in such manner: Formula: (Actual Price-Standard price) x Actual number of units Chemical X: Given data: Actual price= 45 Pounds Standard price= 35 Pounds Actual number of sales unit= 850 units Sales price variance: (45-35) *850 = 8500 (F) Chemical Y: Given data:
Actual price= 37 Pounds Standard price= 30 Pounds Actual number of sales unit= 750 units Sales price variance: (37-30) * 750 = 5250 (F) Sales volume contribution variance- This variance can be defined as analysis of change in profit due to variation between actual and budgeted sales quantity (Zhang, 2020). Formula:(Actual units sold × Budgeted price for each unit) – (budgeted unit sold × Budgeted price for each unit) Chemical X: Given data: Actual units sold= 850 Units Budgeted price for each unit= 35 Pounds Budgeted unit sold= 595 Units Budgeted price for each unit= 35 Pounds Sales volume contribution variance: (850*35) – (595*35) = 8925 (F) Chemical Y: Given data: Actual units sold= 750 Units Budgeted price for each unit= 30 Pounds Budgeted unit sold= 595 Units Budgeted price for each unit= 30 Pounds Sales volume contribution variance: (750*30) – (595*30) = 4650 (F)
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
(ii)The material price planning variance and material price operational variance. Material price planning variance: This is a form of variance which is computed to find out difference between planned and actual material prices. It is computed by below mentioned formula that is as follows: Formula: [(Revised budgeted sales x Standard Margin)- (Actual Sales Quantity X Standard Margin)] Chemical X: Given data- Revised budgeted sales= 595 units @ 4.5 Standard Margin= 25 Actual Sales Quantity= 850 Units Standard Margin= 25 Material price planning variance: [(595*4.5*25) -(850*25)] 45687.5 Chemical Y: Given data- Revised budgeted sales= 595 units @ 4.5 Standard Margin= 20 Actual Sales Quantity= 750 Units Standard Margin= 20 Material price planning variance: [(595*4.5*20) -(750*20)] 38550 Material price operation variance: This type of variance is calculated for finding difference in prices of material, labour etc. This is being calculated by comparing original and revised budgets and revised budgets with actual outcomes (Salles, Rocha and Gonçalves, 2020). In regards to given financial data, this variance has been calculated in such manner that is as follows: Chemical X: Formula: [(Original budgeted sales x Standard Margin) – (Revised budgeted sales x Standard Margin)]
Given data: Original budgeted sales= 595 Units @ 2.5 Standard Margin= 25 Revised budgeted sales= 595 Units @ 4.5 Standard Margin= 25 Material price planning variance= [(595*2.5*25) -(595*4.5*25)] = -29750 Chemical Y: Given data: Original budgeted sales= 595 Units @ 2.5 Standard Margin= 20 Revised budgeted sales= 595 Units @ 4.5 Standard Margin= 20 Material price planning variance= [(595*2.5*20) -(595*4.5*20)] = -23800 (iii) Given the change in operations, critically analyse the merits and demerits of using variances in assessing managers’ performance. Variance analysis is the examination of variations in current activity against predicted or expected behaviour in financial planning or management accounting (Telesca, Helbig and Kanevski, 2019). It is primarily dealing with how the disparity between real and expected activities shows that output of company is being affected. In other words, variance analysis is the systematic study of the disparity between real and expected actions. This analysis is used to retain influence over a company. For example, if the estimation for revenue to be $10,000 and real revenues are $8,000, variance analysis produces a discrepancy of $2,000. In order to assess performance of managers, the variance analysis play a key role this is so because this is constant for all whether it is manager or employee. By help of this tool, director of a company can compare actual data with estimated level of performance. If outcome is showing negative result, then this will be presented as adverse and if outcome is showing positive result then this will be presented as favourable. In the case, when performance
of managers is showing adverse outcome then this can be estimated that manager is not able to deliver targeted goals. In respect to assess performance of manager, this is important that their performance need to be assessed at the end of financial year. In between of a financial year, their performance cannot be evaluated in a better way (Choi, Sun and Chung, 2019). In the absence of applying this method performance analysis, this can become difficult for companies to measure actual level of performance. Such as in regards to above mentioned company, they can apply variance analysis method in order to find out value of actual performance. Apart from the assessment of performance of managers, this is also useful for analysing performance of employees and activities too. It is so because on the basis of this, a manager of company can track variance between actual cost and estimated cost. As well as individual level of performance of each employee is also computed by help of this tool. Herein, belowsomekeymeritsanddemeritsofusingthistechniqueforassessingmanagers’ performance is mentioned in such manner that is as follows: Merits- Variance analysis encourages effective budgeting operation because management aims to see smaller variations from the expected budgets. Wanting a smaller variance typically allows administrators to make comprehensive, forward-looking financial choices. In other words, by help of this managers can focus on those activities whose variance is favourable. Due to this it becomes viable for an organization to consider beneficial activities instead of unfavourable activities. Varianceanalysisservesasa controlmethod.Assessmentof deviationson basic essentials assists the business in understanding the problem, and it help managers look into potential ways of how much difference can be prevented (Vaske, 2019). It results as better performance of a company because managers become able to know that on which activities or operations adverse variance is acceptable on which this is not viable. As a consequence, management of a company prepares effective and viable strategies which may lead to better performance in each condition. Variance analysis encourages determining liability and activates management systems on organizations when it is necessary. For example, if labour performance variance is consideredtobeunfavourableorproductionoverrawmaterialcostvarianceis unfavourable, the management should improve regulation over certain divisions to
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
maximize output. In other words, it gives an overview about what kinds of policies are need to be carried out in order to enhance performance of various kinds of activities and operations for a particular time period. Demerits: ï‚·Variance analysis as an operation is focused on financial statements, which are published far longer after period closing; there will be a time delay and can impact the corrective measures taking the opportunity to a certain degree (Lei, Liu and Zhang, 2019). Also, not all causes of variation can be included in accounting records, which renders acting upon variances challenging. ï‚·In addition to this, the another drawback of variance analysis is that it cannot be applied on non-financial aspects. This can be applied only in the case of financial data analysis such as making comparison of standard and actual data related to cost, income etc. ï‚·Another issue of variance analysis method is that managers can manipulate the data which are used in this approach. If presented financial data are wrong, then this may become difficult for companies to find out correct variance of different kinds of activities and operations. Due to this issue, the actual evaluation of performance of managers can be wrong and organization will not be able to make effective policies to gain higher profitability. So these some key benefits and drawbacks of using above mentioned technique of variance analysis. This is essential for companies that how well they are applying it for assessing performance of their managers and employees. The efficiency and accuracy of produced outcome under this method highly depends on provided financial data for comparison. If provided data are correct then variances will also be right (Ferdous, Adams and Boyce, 2019). In addition, this method cannot be applied for managers because they have right to manipulate actual data and due to which actual evaluation of their performance cannot be done. Part B: As in the above part, this has been explained that if XLG company imports the fama Q product from Brazil then their cost of acquiring this product is increasing. Before lockdown the price of this product was around 2.50 pounds for each unit but after lockdown price raised and it became
of 3.70 pounds per unit for XLG. Due to this company increase their mark-up price till 4.50 pounds for each unit of fama Q. Along with, this company has patent of this product which indicates that only they have right to sell this in all around the United Kingdom. In this critical condition, above company has two alternatives which is to produce this product at home or import product from Brazil which they were doing earlier. In both alternatives, there are some issues now company has to choose only one which is suitable and less costly. In the below part, analysis of both alternatives is done in such manner: Alternative one: The option one is related to making production of fama Q in United Kingdom till cost of import reduces in Brazil. The main issue under this alternative is that it will be against rules and regulation of patent. As per the law, this is essential for an entity who has patent on a product to import or make production under certain guidelines. For XLG plc, this can become difficult to do production as per the rulebook of patent. This is so because they do not have enough knowledge about manufacturing of Fama Q because they were importing it from Brazil so there is a risk that whether company will produce this product effectively or not. From the perspective of finance, a detailed analysis of this option of producing Fama Q has been done below in such manner that is as follows: If making fama Q Chemical XChemical Y Per unit Budget ed Per unit Varian ce Budget ed Per unit Varian ce Selling Price452677545 38823. 75 12048. 75352082537 31921. 75 11096. 75 Cost of Chemicals20119002017255535510595017 14666. 75 8716.7 5 Increase in cost due to import of Fama Q0.51.2 431.37 5 431.37 5-0.5 431.37 5 431.37 5 Total Cost20.5 12197. 521.2 17686. 375 5488.8 7510595017.5 15098. 125 9148.1 25
Profit Margin24.5 14577. 523.8 21137. 375 6559.8 75251487519.5 16823. 625 1948.6 25 Demand as per new scenario has been increased by 45 percent So, new demand for Chemical X and Y would be: Chemical X595+ 595*45%862.75 Chemical Y595+ 595 * 45%862.75 Analysis- The above done calculation is indicating that demand of fama Q may be increase in an effective manner if they will manufacture it in United Kingdom. In addition to this, the cost is also lower as compared to profit margin for both products including chemical X and Y. Hence, in terms of financial perspective this will be viable for above company to produce this product in UK. Though, this will be wrong to conclude earlier without making evaluation of second alternative. In comparative analysis, the results can be distinct (Ji, Zhou and Liang, 2019). Alternative two: This alternative is related to importing the product from Brazil which company was doing earlier as per the provided information. Though, cost of this import was raised after lockdown but before it, this import was viable for company as they were getting product at lower cost. In order to assess this alternative a detailed analysis of cost which occurred in process of acquiring this product has been done in an effective manner. Herein, this is important to know that under it company is fulfilling the rules and regulations of patent. Therefore, only financial perspective of this alternative needs to be assessed that is done in such manner: If Imports:Chemical XChemical Y Budget ed Per unitActual Varian ce Budget ed Per unit Varian ce Selling Price3520825453825017425352082537277506925
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Cost of Chemicals10595020170001105010595017127506800 Increase in cost due to import of Fama Q-1.210201020-1.2900900 Total Cost10595021.2180201207010595018.2136507700 Profit Margin251487523.8202305355251487518.814100-775 Analysis: From above calculated data, this can be stated that company will be able to generate a sum of margin if they import famaQ from Brazil. Though, level of margin is no so higher as per the estimation but company will not face any financial difficulties in short run. Along with, another benefit under this alternative is that company need not to worry about patent rules and regulation (ter Bogt and Scapens, 2019). There is possibility that, after some time Brazil may reduce import-export duties which may lead to lower cost of importing for above XLG plc. Suggestion: In accordance of analysis of both alternatives this can be stated that both options have some merits and demerits. In comparative analysis, it can be suggested to above company that they should go with option one. The reason behind this is that under it company will be able to produce higher return in long run. As well as level of risk factors is also lower in this alternative. Hence, above company needs to go with option one. The reason for which option two has been eliminated is that there is lower profit margin which will not be suitable for long time period for above company. CONCLUSION From above analysis this has been assessed that Management accounting is important for companies to manage their activities. This includes the critical strategies, processes, monitoring methods and other activities that essentially assist decision-making tasks within a company. It is not mandatory for corporate entities to adopt management accounting structures because in real life it is not realistic for a corporation which operates in dynamic to area and deal with various
issues. Furthermore, it recommendsmany strategiesthat not only help key decisionsof developing employees but also provide an assistive system for creation of policies.
REFERENCES Books and journal: Chorley, R.J. ed., 2019.Spatial analysis in geomorphology. Routledge. Zhang, Z.C., 2020. Variance analysis of linear canonical Wigner distribution.Optik, p.164633. Salles, T., Rocha, L. and Gonçalves, M., 2020. A bias-variance analysis of state-of-the-art random forest text classifiers.Advances in Data Analysis and Classification, pp.1-27. Telesca, L., Guignard, F., Helbig, N. and Kanevski, M., 2019. Wavelet Scale Variance Analysis of Wind Extremes in Mountainous Terrains.Energies,12(16), p.3048. Choi, T.M., Wen, X., Sun, X. and Chung, S.H., 2019. The mean-variance approach for global supplychainriskanalysiswithairlogisticsintheblockchaintechnology era.Transportation Research Part E: Logistics and Transportation Review,127, pp.178- 191. Vaske, J.J., 2019.Survey research and analysis. Sagamore-Venture. 1807 North Federal Drive, Urbana, IL 61801. Lei, H., Liu, J. and Zhang, L., 2019, December. Tourism Image Endorsement Based on Experiment and Variance Analysis. InIOP Conference Series: Earth and Environmental Science(Vol. 371, No. 5, p. 052001). IOP Publishing. Ji, K., Wang, Z., Zhou, Y. and Liang, Y., 2019. Improved zeroth-order variance reduced algorithms and analysis for nonconvex optimization.arXiv preprint arXiv:1910.12166. terBogt,H.J.andScapens,R.W.,2019.Institutions,situatedrationalityandagencyin management accounting.Accounting, Auditing & Accountability Journal. Ferdous,M.I., Adams,C.A.and Boyce,G.,2019. Institutionaldriversofenvironmental managementaccountingadoptioninpublicsectorwaterorganisations.Accounting, Auditing & Accountability Journal.