Control Over the Business Analysis 2022

SECTION B
Question 1(a)
Variance Analysis is the analysis between the actual and planned budget, it is
done by the management of the company in order to keep a control over the
business.
Example: If there is an estimated annual budget for sales is $20,000 and the
actual sales are $ 17,000,variance analysis yields a difference of $3,000.The
variance analysis is generally effective when the amount of such variance is
shown on a trend line ,so that the changes in the level of variance from month to
month are very much transparent. Variance analysis also involves the
investigation of such difference in amount, and accordingly interpretation of such
variance needs to be done. (Accounting Tools.com, 2020)
The below list presents a commonly -derived variances used in variance analysis:
1) Purchase Price variance
2) Labor rate variance.
3) Variable overhead spending variance
4) Fixed overhead spending variance
5) Selling Price variance
6) Material yield variance
7) Labor efficiency variance
8) Variable overhead efficiency variance.
Question 1(b)
The companies use variance analysis in order to improve the performance. The
cycle consists of preparing the performance report, analysing variances, raising
question, identifying root cause of it and taking actions and in the same way
conducting next period operation. This cycle continues repeatedly and the firm
will see improvement over time.
The performance report is very useful in illustrating the variances. An example of
performance report shows various type of variance. Both favourable and
unfavourable variance needs to be analysed individually.Sample report of a soda company:
Budg
et
Actu
al
Varian
ce FavorableUnits Sold 10000
1200
0 2000 FavorableRevenue 20000
2400
0 4000 FavorableTotal Expenses 6000 7000 1000
UnFavorabl
e

Net Operating
Income 14000
1700
0 3000 Favorable
The next step is to raise questions .Few questions that can be raised from the
management end ,the reason for the increase in sale ?Reason for the increase in
expenses ?Will the increase in net income be repeated in future period ?To
answer this questions, the root cause for the same needs to be identified. The
above report which has been depicted is very simple. Expense is shown in one
heading and the break up for the same has not done, the expense part is a mix
of both fixed and variable expenses. The increase in expenses may be due to
increase in units sold. The next step is to correct the variances and possible
action in order to reduce the expenses or if the increase in expenses is
manageable. This cycle repeats with the same procedure involved.
Question 1(c)
The two advantages of variance analysis are as follows:
1) Indicate Departure: The common advantage is that it indicates departure
from the standard or expected. This departure from the figure gather
attention from the management for investigation.
2) Controlling Expenditure: The second advantage is that it controls
expenditure .The management of the company needs to take proper
action if there is an adverse result for variance. (Advantages of Variance
Analyses , 2020)
The two dis advantages of variance analysis are as follows:
1) The major drawback is that it takes much longer time to investigate the
effect of the variance and therefore the correction decisions which are
required to be undertaken are delayed. This led to lag time and
significantly application of control measures will also be delayed.
2) The analysis of variance is a very expensive act for the small
businessmen. Therefore, analysing each and every aspect does not make
any sense.
3) The variance analysis id done by the accounting staff, so immediate
feedback is not possible to the higher management. (Variance Analysis,
2020)
Question 1(d)
Variance analysis will prevail over a long run in business and also after 10 years
down the line because the business decision will be on the basis of variance
analysis. It will help management to take informed decision. It will help in
managing budgets, controlling cost and others.

Question 2Sl
No
Particulars
Amoun
t Amount
1 Beginning Direct Material Inventory
45000.
00
2 Direct Material Purchased
756000
.00
3 Ending Direct Material Inventory
24500.
00
776500.
00
4 Wages paid to Direct Labourers
456000.
00
5 Prime Cost
1232500
.00
Factory Overheads
6 Wages paid to Factory Supervisors
234000
.00
7 Wages paid to Indirect Labourers
23450.
00
8 Electricity used in the plant
130000
.00
9 Overhead supplies used in plant
23500.
00
10 Oil for factory heating
87000.
00
11 Depreciation for equipment
86000.
00
12 Property tax of plant
32000.
00
13 Rent paid for factory equipment
34000.
00
649950.
00
14 Beginning WIP
58500.0
0
15 Closing WIP
-
102000.
00
16 Works Cost
1838950
.00
Administration and Office Overheads
17 President Salary
450000
.00
18 Head office salary cost
350000
.00
19 Head office Rent
75000.
00
875000.
00
20 Cost of Production
2713950
.00
21 Opening Stock of Finished Good 175600.