ACC 202: Final Project Part I Budget Variance Report Submission

Southern New Hampshire University

 This submission will be a brief discussion of the variations that are necessary [What “variations” are you discussing here?] for the pet company, Peyton Approved.  There will be an explanation of the operating budget with the different cost methodsand labor and sales projections based ontheir desired profit margin. The variances were entered intothe spreadsheet to show the budget breakdown. Thispaperwill discuss the additional components of the variances that contribute towards the overall cause, finishing with the key points that can be drawn from the report.

Peyton Approved needs a cost variance to keep the unitcosts of materialand labor inputs within the standards.  Here is how the cost variance is calculated:

(Actual Cost x Actual Quantity) – (Standard Cost x Actual Quantity)

= (Actual Cost – Standard Cost) x Actual Quantity

= (AC – SC) x AQ

The efficiencyvariance is defined as measuring how well the business uses its materials and other resources.  Here is how theefficiencyvariance is calculated:

(Standard Cost x Actual Quantity) – (Standard Cost x Standard Quantity)

= (Actual Quantity – Standard Quantity) x Standard Cost

= (AQ – SQ) x SC

By using these variances, our management team can find where thecompanymight be overspending on materials and mightneedto balance out more of the income in other areas [This is a little unclear.  What do you mean by “balancing out income”?]. It [What can be effective?] also can be very effective to the day-to-day business and its functions.  When the company is not open during business hours, that’s when the biggest decisions are made for the budget to determineits daily sale goals to be met and discussed with management. The sales that are made determines thehours the employees will spend fulfilling the orders and the money it needs topay to the employees.  The direct material usage variance is the difference between the actual and expected unit quantity needed to manufacture a product. The variance is used in a standard costing system, usually in conjunction with the purchase price variance.  These variances are useful for identifying and correcting anomalies in the production and procurement systems, especially when there is a rapid feedback loop . [When you take material directly from another source, like this, then you need to enclose it in quotation marks and provide an in-text citation to that source.  Failure to do so constitutes plagiarism.] The direct material usage variance is most commonly used in a production environment, but can also be used in a services business where hours worked can be compared to a budgeted level.  [Again, when you take material from a source, you need to provide an in-text citation for that source.]

In the budget variance worksheet, the balances on the spreadsheet [Which balances?  Keep in mind that you calculated three separate variances for both labor and materials – cost/price, efficiency, and total variances.  You need to be clear which of these variances you are referring to.] are favorable and are within their budget for the three months.  The decision-making process is important to figure out the standard cost and where it should be setfor the company to keep running within their budget. For instance, buying large amounts of supplies that arenot needed now, pricing changing with the economy and change in the quality of materials that is purchased [This is a sentence fragment.]. Having control and balancing the materials [What does it mean to “balance the materials”?] that are being purchased is very important for PeytonApproved. 

            PeytonApproved is a successful business that is being managed well and is within their monthly budget.  The management team knows how to keep the materials afloat and not become low in products so workers can continue to make Peyton Approved great,healthy dog food.

Good effort!  You did a good job outlining the equations used to calculate the cost/price and efficiency variances.  However, for this assignment, you needed to identify and discuss the cost/price, efficiency, and total variances you calculated for labor and materials. 

You also needed to provide more detail on the potential causes of the variances you observed.  What was the total direct labor variance?  Why was it favorable/unfavorable?

Addressing these issues will help you complete Part 2 of this project.

References

Nobles, T. L., Mattison, B. L., Matsumura, E. M. (2014). Horngren’s financial and managerial accounting (5th ed.). Upper Saddle River, NJ: Pearson Education, Inc.

What is the direct material usage variance? - Questions & Answers. (n.d.). Retrieved April 15, 2017, from http://www.accountingtools.com/questions-and-answers/what-is-the-direct-material-usage-variance.html