Financial Performance Management Report: Costing and Variance Analysis

This report provides a comprehensive analysis of financial performance management. It begins with an introduction to the importance of financial result management and the various methods used for measurement. The report then delves into a detailed analysis of costing methods, comparing the per-unit cost calculation using labor hours and the Activity-Based Costing (ABC) method, along with an evaluation of the results obtained from both approaches. The report further explores variance analysis, including material usage, mix, and yield variances, along with a discussion of the problems associated with the current system of calculating and reporting variances. The report also evaluates the effectiveness of zero-based budgeting (ZBB) and incremental budgeting (IB) for organizational preparation and control. The conclusion summarizes the key findings and emphasizes the importance of financial planning for effective financial result management.

Financial Performance Management

Contents
INTRODUCTION...........................................................................................................................................3
QUESTION 1.................................................................................................................................................3
QUESTION 2.................................................................................................................................................9
QUESTION 3...............................................................................................................................................11
CONCLUSION.............................................................................................................................................12

INTRODUCTION
Management of financial results is a constant real economy and therefore is essential for growth
& development throughout each level. This is a subjective measurement that each company
performs to operate its business operations efficiently in the right way. This concept is used by
management to calculate overall growth and business health over such a given timeframe. There
are different ways in which financial results can be measured and aggregated. Analysts and
investors may continue to take a closer look at financial results and effectively decrease. This
report is focused on the value management in accordance with the costing and absorption costing
system based on operation. The application of estimation method to help the management and to
measure different content variances is included in this study. The concerns with the new method
and variances in measuring performance are also analyzed. The ZBB and gradual money
management for perfect preparation are critically discussed at just the conclusion of the research.
QUESTION 1
(a) Calculation of per unit cost on the basis of labor hours
Total Overhead cost
Setup costs 120000
Receiving 30000
Despatch 15000
Machining 65000
230000
Overhead absorption rate:

Lipstick Lip-balm Lip-gloss
Production Volume 30000 35000 3000
Labour hour per unit 3 2 2
total labour hours 90000 70000 6000 166000
Total Overhead rate
230000 /
166000 = 1.3855
Cost per unit:
Lipstick Lip-balm Lip-gloss
Sales 22 26 24
Raw material 5 10 10
Labour cost 5 5 5
Overheads rate 4.16 2.77 2.77
Cost 14.16 17.77 17.77
Profit per unit 7.84 8.23 6.23

Units 30000 35000 3000
Profit 235301.20 288012.05 18686.75
(b) Calculation per unit cost on basis of ABC method.
Cost
Driver
Setup costs 120000 25 setups
Receiving 30000 22 deliveries
Despatch 15000 50 despatched
Machining 65000 12 machining
Cost driver data:
Machine hours per unit 4 4 4
Number of setups 10 14 1
Number of deliveries received 10 10 2
Number of orders despatched 20
20 10 20 20 10

Cost per setup
120000/2
5 4800
Cost per receiving activity
30000 /
22 1363.6364
Cost per despatch
15000 /
50 300
Cost per machining activity
65000 /
12 5416.6667
Allocation of overheads to each
product
Lipstick Lip-balm Lip-gloss
Setup costs 48000 67200 4800 120000
Receiving 13636.4 13636.4 2727.28 30000
Despatch 6000 6000 3000 15000
Machining 21666.667 21666.667 21666.67 65000
89303.067 108503.07 32193.95

Production Volume 30000 35000 3000
Overhead cost per unit 2.9767689 3.1000876 10.73132
Sales price (per unit) 22 26 24
Material cost (per unit) 5 10 10
Labour hours (per unit) 3 2 2
Overhead cost per unit 2.98 3.10 10.73
Profit 11.02 10.90 1.27
(c) Evaluation of results as per labour hours and ABC approach.
According to the following estimate, it was analysed that different processes of labour
hours and ABC costing methods are used for price per unit. After the estimate, 7.84, 8.23 and
6.23 results are obtained through both methods according to the labour per hour. But in the other
hand, the findings are 11.02, 10.90 and 1.27 simultaneously through the implementation of the
order to understand the dynamics. Two methods involve different accumulations of materials and
amounts are evaluated and per the measurement. The absorption value of the 3 systems is
specified as 235301, 288012 and 18686. The cost of production benefit for ABC, from the other
hand, is 11.02, 10.90 as well as 1.27 separately.

Unless the absorption price is applied, various inventory expenses like fixed operating
costs, energy bills including factory storage losses are included in the measure. There are
multiple expenses, like direct supplies, labor and capital spending, including the site manager's
salary and company tax. These goods contribute to the study of real profitability and less of the
sales value. In this process, fixed output overhead is allocated as item expense and assists in
judgment on product range. In addition, the cost of absorption offers a poor assessment of the
real cost of producing each commodity.
Activity-based technology is used to reliably assign production expenses by ascribing tasks
to them. All the expense calculation is based on unique intellectual honesty operations. The
concept will be based on the elimination of overhead expenses in negative ways. ABC works
well in traditional circumstances where it is not straightforward to learn a great deal of objects
and devices. For example, the environment where production cycles become cut down does not
have a condensed value. There are several data requests that are centred mostly on ABC method.
But at the other hand, in terms of precise collection of data, the information will be accessible
except when designing a system and that will assist in the judgment process. If, after coming to a
decision, an organization may use the standard ABC framework to find that relevant information
is not needed. At the end of the process, the framework is focused on the protocol and collects
economic impact research based mostly on choice and endorses the method cost and provides
optimized performance with advantage details. In addition, the overall review presents the use of
activity-based approaches for critical assessment.
(d) Sensitivity analysis help managers to cope with uncertainties
Analysis of sensitivity is a template of results for changing input information and predicting
possible cash flows that rely largely on future events, sales, habits, transactions. The stream will
affect the value of the forecast in complex equations. Based on study, some input data can be
removed and further data analysis as well as analysis can be performed. It is linked to the results
where, if not necessary, all data and model uncertainties should be eliminated before investing
quantity and space to gather additional data for the production and calculate device output for the
process of analysis. This study describes about the various independent variables that effect on

singular event practices. For the study need a prepare a technique to use for candidate models are
affected on the inner expression adjustment known as input concern.
The basic model is split into a statistical model and a means of analyzing outcomes based on the
number of parameters. This study of the empirical approach is focused on different variables that
affect the findings by generating a sequence of variables. The observer examines the significant
effect of the adjustment and performance signal on the target. The sensitivity of the improvement
of human organizations' securities can be measured and consists of market income, portfolio
estimates, the number of rivals competing in the business and the effect on stock prices of
different variables. There is analysis on the prices of properties that can be refined by choosing
various hypotheses and adding several parameters. The appraisal allows managers to evaluate the
multiple components that will affect the results, such as the decrease in investment costs. As a
consequence, after doing sensitivity analysis, it would impact on future income and assessment
to put up with the uncertainties carried out in a new market entity. It is a means of evaluating
situations that the center anticipates differently. It is meant to observe the extent of risk of the
operation that helps the outcomes to be evaluated depending on the accuracy of inputs.
QUESTION 2
(a) Calculation of variances
(i) the material usage variance for each ingredient and in total
Should use
(KG)
Did use
(KG)
Difference(KG
)
Standard
cost/kg
($) Variance($)
Alpha 1840 2200 360A 2 720A
Beta 2760 2500 260F 5 1300F
Gamma 920 920 1
5520 5620 580F
(ii) The total material Mix variance.

AQSM AQAM
Difference(KG
)
Standard
cost/kg
($) Variance($)
Alpha 1873.33 2200 326.67A 2 653.34A
Beta 2810 2500 310F 5 1550F
Gamma 963.67 920 16.67F 1 16.67
5620 5620 913.33F
(iii) Yield variance
SQSM AQSM Difference(KG)
Std
cost/kg
($) Variance($)
Alpha 1840
1873.3
3 33.33A 2 66.66A
Beta 2760 2810 50A 5 250A
Gamma 920 936.67 16.67A 1 16.67
5520 5620 333.33A
Alternative solution:
5,620 kg input should produce 4,683·
33 kg of Omega 5,620 kg input did produce 4,600 kg of Omega
Difference = 83·33kg x $4 per kg ($400/100 kg) = $333·32 A
(b) Problems with current system of calculating and reporting variances
As per the study, it is established that raw material varies from outside the range of production
and is primarily responsible for this purchasing manager. Together with the organization's
production manager, attention is not given to the everyday mix. Analysis of various variances is
required for the administration, but may not be observed. For preparing differences, it is

important since they will not evaluate them. Price levels and productivity of three products is
being adjustable and the use of rates as per the requirements for combining yield.
Improvements in the consistency and costs of simple mixture and product related products have
not improved in 5 years. It has become the justification for conducting control operations based
on the numerous variances and setting obsolete expectations. Since the kappa organization
actually has no feedback and opinions attributable to fewer true pictures and becomes the
production manager's justification for performance. While Kappa co does not affect numerous
variations that are capable of observing costs and being complacent.
QUESTION 3
Evaluation of neither ZBB nor the IB delivers the impeccable toll for preparation organization
and control
Zero-based budgetary control is an expenditure plan that begins at zero and that is not
linked to the previous budget. This budget is intended to measure the annual budgets to be
generated in the year. This encourages the organization to look at the current number, not the
previous number. It needs workers to make decisions and strengthen the organization's teamwork
and communication. By determining the unnecessary expenditures in the sector that could be
eliminated, it allows the organization save more money as well as produce profitability. Capital
expenditure, from the other hand, seems to be the budget planned from the existing budget as a
basis and incorporates the sum of the increase in the current budget cycle. Companies may
terminate rivals in this budget or build the benefit of true equality between units but the same
sum to change from the previous year.
The zero-based budgetary control does not take into account the expenditure of the current
year, it begins with the initial and also the funds allocated to each division are calculated in
relation to the costs of that year, while the invested capital is planned for the present year since
the preceding year's budget basis. ZBB is planned by allocating the maximum funds to certain
business processes that benefit the organization. This budget takes time since this strategy begins
around zero and requires awhile throughout current operations to plan the budget. It takes less
time to plan for budget estimates, since the new budget is measured from the previous budget.
This expenditure plan requires tools and knowledge to plan the budgetary, and it is simple to
process in gradual terms because it wouldn't involve budget planning training. This budget

also takes the expenses incurred to develop the expenditure since it is due to begin and therefore
does not entail any costs to draft the expenditure incrementally. Zero-based financial planning
decreases the risk and confusion potential in the operations as it calculates the base expenditure
but does not pay much attention to this aspect in an operation in incremental terms because it
adds or subtracts from the previous budget.
CONCLUSION
As per the above report, it has been assumed that success in financial planning is a way of
controlling and evaluating an entity's financial results. The key justification for the management
to compare and approximate current expenditure values and make changes accordingly. Analysis
of the content variances and labor variances in this study on the basis of various methods after
which different outcomes are effectively obtained.