The success of the company depends on how well the planning is done. In this process the budgeted figures are compared with the actual figure. It seems that the fixed budgeted figures are compared with the actual budget without flexing it. Therefore there is a problem with the company’s employee. It seems that the focus is on the dollar amount not on the volume of the goods is being produced. For example, the company has set target of 2000 units with fixed cost of $20000 and variable cost of $60000. It means that the total budgeted cost is $80000. It is compared with the actual figures without looking at the volume. Now suppose that the actual cost incurred is $90000 and the volume is 2500 units. If $90000 is compared with $80000, it looks that the spending is more by $10000, which is wrong. Because the actual cost should have been spent for 2500 units is $20000 fixed and $75000 for variable, therefore the flexible budget for actual volume should be $95000. Now compare it with $90000, which shows there is saving of $5000 not overspending of $10000. It means that overspending always is not a bad…
By using a budget the management team can predict their future costs and cash needs, plan production, etc. Variance reports can help the managers to identify specific functional areas where they came in either over or under budget. They will try to repeat their successes and get rid of their failures. Each month they hope to become a little more efficient.…
When considering budget variance, it can be very important to differentiate between the things that affect the budget that can be controlled and those that cannot. There are a number of reasons why a budget variance can occur. One reason is that the budget was poorly planned. This is an example of a controllable factor (WiseGeek 2012).…
A budget is an instrument used to help managers ensure that the resources used effectively and proficiently toward the goals of an organization. A budget projection can be made on a yearly base depending on previous year or existing one. They can further be broken down quarterly or monthly depending on it use. Generating a budget is complex undertaking, and for a budget to be effective the organization ought to follow it strictly. However, no matter how closely a business follows their guidelines there will always be some form of variances. The organization should expect a few variances and be able to work these discrepancies in any budget constraints.…
A budget variance is any difference between a budget and what was actually spent during the time period.…
The OM company has ever faced a change in customer-behavior. Initially, services stopped at the hospital’s loading door. At now, low-unit-of-measure or stockless systems become popular at customers, for instance, plastic totes that go directly to the nursing and surgical units, bypassing the entire storeroom process. The entire service-level increased. In 1994, the Activity-Based Costing method was introduced at O&M. Under ABC model, the cost drivers can affect cost per customer, and hence customer profitably. At O&M, cost-plus pricing was the dominant form of pricing in the medical or surgical distribution industry. Customer pays a base manufacturer price plus a markup added on by the distributor. Cost-plus fees are individually negotiated with the customer.…
The most effective way for a company to achieve labor costs per pair produced that are below the industry average is to give…
The existing cost system is strong in that it is simple and easy to maintain.…
It is a strategy that has enabled it to position itself in the minds of the clients. Pursuing it has allowed the firm to sustain a relatively distinct advantage over the rivals. Moreover, the low-cost strategy allows it to have leverage through not passing additional fees to the clients. The culture has also contributed to the success of it value chain that has enabled it to perform cost effectively in comparison to their competitors. The service branch with regards to its value chain, it can double its recuperation cost through the announcement of customer savings. Competitive leverage emanates from the customers being made to comprehend the value that ticket prices that result in the increase in the company's market share. Therefore, the strategic operations of the company are aligned with the culture that the company has integrated within the organization that puts a lot of emphasis on the workers (Srinivasan,…
Canadian GDP has been showing an increase trend from 2001 to 2010 as showed in Appendix 1, even though between 2008 and 2009, GDP had a negative growth rate of 2.8%, the 3.3% of increase in GDP at 2010 pull up the figure again to make an overall increase trend. Because of the significant increase in GDP over the past decade, consumers have more money spend on entertainment and education. Thus, more people tend to go to watch art shows and learn to play musical instruments. If looking at Appendix 2, the first chart shows clearly that the average household spends more money in entertainment outside home in 2003 than 1998. For example, people spend $20 more on performing arts on average per year. It implies that an increasing number of people will go listen to a concert,…
As with any system there are also negatives. Implementation costs related to the actual system as well as training, education and workflow redesign can be a concern especially when implementation costs may not be worth the benefit of the system.…
We were able to run this situation three different times and therefore were able to apply different pricing strategies. In the end of each run, our aim was to improve the financial results of the company, either in terms of cumulative profit, financial market share, cumulative unit sales, capacity utilization and final month’s profit. For this, we could only change the prices applied by the company in weekdays and on weekends.…
As commonly calculated the cost-per-defect metric measures the hours associated with defect repairs and the numbers of defects repaired and then multiplies the results by burdened costs per hour.…
The labor rate variance is the difference between the actual labor rate paid and the standard rate, multiplied by the number of actual hours worked. The formula is: Actual rate - Standard rate x Actual hours worked = Labor rate variance. An unfavorable variance means that the cost of labor was more expensive than anticipated, while a favorable variance indicates that the cost of labor was less expensive than planned. There are a number of possible causes of a labor rate variance. The labor rate variance will not be zero because workers ate under contract. Wage rates paid to workers are quite predictable. Nevertheless, rate variances can arise because of the way labor is used. Skilled workers with high hourly rates of pay may be given duties that require little skill and call for lower hourly rates of pay. This will result in an unfavorable labor rate variance, since the actual hourly rate of pay will exceed the standard rate specified for the particular task. In contrast, a favorable rate variance would result when workers who are paid at a rate lower than specified in the standard are assigned to the task. However, the lower-paid workers may not be as efficient. Finally, overtime work at premium rates will result in an unfavorable rate variance if the overtime premium is charged to the direct labor account.…