Variance Analysis for Assessing Manager Performance in Management Accounting

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
PART A...........................................................................................................................................1
i) Sales price variance and sales volume contribution variance..................................................1
ii) Material price planning variance and the material price operational variance.......................2
iii) Variance analysis for assessing the performance of managers..............................................3
PART B...........................................................................................................................................6
To evaluate make or buy decision for FamaQ.............................................................................6
CONCUSION..................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUTION
Management accounting could be defined as process of identifying, analysing,
measuring, interpreting and communicating the information to the managers. MA focuses over
accounting aimed in informing the management about the operational metric. It includes
information related to the cost or product or services purchased by company. Budget often used
for quantifying decisions made in the operational planning. Performance reports are used by the
management for identifying the variances between budgeted and actual budgets. The major
difference between management and financial accounting is that FA is collection of the
accounting data for creating financial statement and MA is internal process used for accounting
the business transactions. Present report is based on the concepts of MA and XLG Company. It is
producer of cleaning products which is prepared using the material called FamaQ and it has
secured patent for the material. Company wants to study the variances and the merits and
demerits of using variances in analysing the performance of managers. It wants to analyse the
make or buy decision for the FamaQ as the imported materials is costing high to company.
PART A
i) Sales price variance and sales volume contribution variance
Sales and Contribution
X Y
Total Sales 595 595
Actual sales volume 850 750
Standard Sales Price 35 30
Actual Sales price 45 37
Standard Margin 25 20
Sales Price Variance – This variance analysis is used for measuring changes in sales
revenues as the result of variations between the actual & standard sales price. Actual sales of the
products could differ from the budgeted sales because of various reasons such as increase in
demand of product. There are various factors that influence the sales like change in tastes or
preferences, prices, trend and such other factors (Chiu and et.al., 2018). The variance quantifies
the difference in sales that results from the difference in market and standard price.
1

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 – The variance is used for measuring the revenues
earned by firm over the actual sales as against standard sale volume projected. This helps
company in making accurate estimation for the revenues which will flow to company in future.
Using this variance management identify the difference in contributions for taking steps for
increasing the profits.
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
X Y
Actual sales volume 850 750
Standard Price 2.5 2.5
FamaQ unit required 1 1
Increased Price 3.7 3.7
Prevailing Price 4.5 4.5
Material price planning variance – The variance analysis is used by the management to
measure the extent to which the original budgets are required to adjust to reflect changes in the
operational conditions of the current circumstance and the one which is envisage while
calculations of the standards.
2