MA DIS - 5

Variance Analysis

Write an analytical summary of your learning outcomes from chapters 9 and 10. In addition to your analytical summary, address the following:

1.     As a manager, discuss how you would use or have used the concepts presented in chapters 9 and 10.

2.     Why might managers find a flexible-budget analysis more informative than static-budget analysis?

3.     How might a manager gain insight into the causes of flexible-budget variances for direct materials, labor, and overhead? Provide at least one numerical example to support your thoughts.

Required:

1.     Post your original discussion. Read and respond to at least 3 of your classmates’ posts. See the class syllabus for posting requirements.

2.     Be sure to support your work with specific citations using APA format

3.     Read a selection of your colleagues' postings using one or more of the following ways:

·        Share an insight from having read your colleagues' postings, synthesizing the information to provide new perspectives.

·        Offer and support an alternative perspective using readings from the class materials or from your own research.

·        Validate an idea with your own experience and additional research.

·        Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

·        Expand on your colleagues' postings by providing additional insights or contrasting perspectives based on readings and evidence.

·        Return to this Discussion several times to read the responses to your initial posting. Note what you have learned and/or any insights you have gained as a result of the comments your colleagues made.

REPLY - 1 (RANDEEP KUMAR)

In every company preparation of budget is major important part. Budget is having planning and controlling decisions. Budget is the determination of asset can be accepting or decline. So that we can make the decisions according to that. Manager will take the decisions based on company goals and objectives how we can achieve and will discuss with employees accordingly. When manager will be taking the decisions on the investment will have some estimations on the investment how much we can spend cash and how much we can back on that investment. Based on that we can simply reject or accept. Always we can expect more from what we invest today. Capital budget is the process of series techniques and analysis to follow up these can make decisions and decide which project is best for the company. The main goal of the capital budget is to provide the value added to the company. Generally, we can add the value without losing anything from the company. Every manager will assume and estimate in this environment only. The manager will analysing the actual performance of that financial year.

            Variance analysis is the difference between actual amount, planning and budgeted amount in the investment. In this step, we can get different outcomes. The variance analysis can be used for, to get control over on the business and to cost control in the firm based on that we can reach the target easily. By doing variance analysis we can avoid the distractions in the business. Every month, the management team will do the variance analysis to estimate some findings in the firm. This allows the business leaders easily analysis the result. Generally, people represents as executives will do the variance analysis in the company and will improve the risk management and make better decisions to meet the commitment of the business. They will produce the outcomes and meet the share value targets in the organization.

Flexible budget variance is the difference between the actual picture of the budget and line of the assumptions of the business. The flexible budget business allows to see the importance of static budget. The static budget involves in the form of usage of the assumptions and predications about the sales, the market economic conditions and factors to get predictions assumptions might not be correct but will get control on the business. Flexible budget is used to base line changes in the business. Sometimes we may do some changes that can be remain same in the planning but will get some cost control on the business. The greatest advantage of the flexible budget is constant planning is the quality to do new business conditions. So company will make decisions according to the market conditions. The variance analysis is difference between actual picture and manager assumptions such as manager will estimate sales 1000$ but the actual sales were 8000$ so the difference is 2000$ so here manager will investigate and find the difference why we lose those 2000$ and next month manager will adjust reach the targets next time. By using variance analysis, we can identify the budget problems and key issues and would identify the need changes in business and also managerial issues in organizations.

Reference

William J. C, Michel charbon, P. S., Milan Kundera, R. G., Philip, (2008, November 28). Flexible budgeting influence on organizational inertia and flexibility.

Alexandra, S.A. (2018). Flexible budget variance analysis extends to patient visual acuity and DRG. Health Management Review, 22 (9), 41-74.

Roland Barthes, C. A. (2008). Using flexible budgets to manage organizational performance and cost. Annals of the Academy of Romanian Scientists New Series on Economy, Law, 9(11), 77-49.

REPLY - 2(SOHAN BABU)

Budgeting & Performance Variance Analysis:

Budgeting is one of the important factors where managers should have a keen understanding of the project and hence, they can plan the budgeting accordingly. If the budget is in a high overflow condition, then the project and team members get into a critical position. Mainly why budget is important? It is because when an organization is planning to develop some project or a product there must be a proper scale of spending money. And the deadlines budget allocation should be planned accordingly. SO, that the organization board members will have a proper idea how the work is going on with no economic loss for any organization.

When it comes to performance variance analysis is nothing but mainly variance can be explained in such a way it is the variations between the budget of the organization, planning and standard cost of the company and the sales. And mainly performance variance can be defined in such a way the difference between the expected income which made for a project and the actual planned budget for the project. And the project will be proved successful when the performance is far good than the expected results then it said to be performance variance is in a good condition.

As a manager it is my responsibility to maintain the project in a successful path. Mainly when it comes to the work progress when a team is making good progress in the project then the applied budget by the organization for that team will be fulfilled. So, in that case as a manager its my role to have a keen observation toward the budget flow for the project such that according to the deadlines I can allocate the work for the team members. When ever as a manager if I failed to maintain the budget and variance of the planning then it will be a impact on the entire team and many questions will be raised on the manager role.

For a better example, every manager should divide the budget which are allocated for the team. For instance, there are few examples which causes the variances. Hiring should be always very selective and look for a better skilled person all the time. Scheduling should be perfect by a manager when starting a project. Profitable decisions must be taken all the time.

References:

Budget to Actual Variance Analysis in FP&A. (n.d.). Retrieved August 24, 2020, from https://www.wallstreetprep.com/knowledge/budget-actual-variance-analysis-fpa/

Variance analysis. (n.d.). Retrieved August 24, 2020, from https://www.adaptiveplanning.com/solutions/use-case/variance-analysis

(n.d.). Retrieved August 24, 2020, from http://icmaoman.com/budgeting-varience.php

REPLY -3 (SINDHU SIRIPUR)

The business manager takes a good position in the business organization to take the business to a new level. The business system needs to plan a budget system to plan certain things related to the business system. A business organization uses a budget plan to make business run smoothly in the market. Therefore, a short-term business budget has a flexible budget that helps business managers. This budget helps business managers in analyzing performance for a particular financial year. It helps business managers predict future business-related sales, which can be beneficial to a business’s growth rate. This allows business leaders to easily analyze actual results. A flexible budget plan helps employees working in a business organization manage business-related production activities. In this way, direct costs can be estimated quickly, which helps in proper plan management. It helps in estimating the total revenue and expenses associated with the production process. Using standard cost, variations can be easily identified for business planning in the near future.

Budget planning is an important pillar of a business organization that is essential for sustainable business growth. For the business manager, a flexible budget plan is more information than a fixed budget plan. This type of budget helps business managers analyze variations that may arise during actual sales estimates. Diversity helps business managers to provide information on the difference between actual and estimated sales made by a business entity. If the difference between actual and projected sales is small, it will help in future business planning in competing firms. In this way, problems related to sales forecasting can be easily solved. So it helps to improve the efficiency of business managers, which has a positive impact on business sales. Therefore, a flexible budget can help identify areas that will face multiple business challenges in the near future. Therefore, business managers always advocate a flexible budget plan instead of a static budget plan.

For business managers, the emergence of deviations is a concern in the business organization. With a flexible budget plan, the manager gets information about diversity, which also creates a difference between forecast and actual sales. This requires a direct cost sharing. Calculating these direct costs will help you plan a proper and efficient budget for your business. It also takes into account direct labor costs, which can help estimate the appropriate sales for the business. The difference is calculated in each industry because the financial planning of the business depends on it. For example, a business entity is ABC, so this business entity plans to estimate sales in the near future, which can be calculated by predicting the difference in advance. So direct labor costs, 000 40,000, direct equipment cost $ 50,000 and overhead costs, 000 70,000. Therefore, if all costs are added up, the business manager will understand the estimated cost, which is, 000 160,000. If actual sales are $ 170,000, then there is no deviation.

References:

Garrison, R.H., Noreen, E.W., & Brewer, P.S. (2012). Management Accounting. McGraw Hill.

Gislar, M., Baker, K., And lipid, J. (2017). Calculate costs and make decisions based on variable activities. Journal of Corporate Accounting and Finance.

A gersil. And backwaters, K. (2016). Comparative analysis of the general cost of the method with total and variable cost in the internal report. International Management Journal.

Finkler, S.A. (1985). Flexible budget variance analysis extends to patient visual acuity and DRG. Health Management Review, 10 (4), 21-34.