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Write 9 pages thesis on the topic be able to make financial decisions based on financial information.
Write 9 pages thesis on the topic be able to make financial decisions based on financial information. Competitors may have offered new products having more superior quality that attract more number of customers. Another reason may be that the company might have changed the product price that may, in turn, result in a variance in the unit sales volume.
The direct material price variance (£7,500) is the variation between actual material cost (£22,500) and budgeted material cost (£ 15,000). Here, the material price variance shows an unfavorable trend, as the actual cost is higher than the material.
The other reason for the price variance may be due to the non accessibility of cash discounts that are actually expected at the time of deciding the price standards and also may be due to changes in transportation costs, careless purchasing and changes in the material standard.
The total direct labor variance is found by evaluating actual cost of direct labor to the budgeted direct labor cost. If the actual cost is in excess of the budgeted cost, the resultant variances become unfavorable. This may be due to the usage of more labor hours as there is shortage of adequate experienced labors in the concerned cutlery manufacturing. The other reasons are the higher payment of labor rate per hour. The sum of unfavorable direct labor variance (1,875) is the combination of adverse direct labor efficiency variance of (5,625) + adverse direct labor rate variance of 3,750.
The adverse variance in the material usage amounting (£ 3,000) are due to the imperfect material, unnecessary waste of material, and stricter quality control. The labor rate variance has shown an adverse trend. This unfavorable variance is due to the increase in the wage rate of laborers. The labor efficiency rate is also showing an unfavorable trend of (£ 5,625). This is mainly due to the usage of poor quality material. The company lacks the supply of steel material of adequate quality.
