Jet task2 Essay

While it is true that Ms. Forthright had always exceeded her budgeted sales, the extent to which she diverts away from the managers projections does not necessarily means that she is violating honesty and integrity. Her decision on what her budgeted sales for the year is highly relevant to the data available to her. Her projections tends to lie between the field manager and the marketing manager’s predictions, which can be reasonable because in the past years, the field manager’s projections tend to be over what the actual sales of the year will be.

As we continue to move toward the end our quarterly objectives. I wanted to take the time to explain some of our costs. In our particular field of designing and manufacturing products, we are always engaging in ways that we can mitigate loss and improve our processes. Performing such changes will give a stronger presence in the market by allowing us to remain competitive.

In order to find out the factors that caused the less actual quarterly income, we did analysis on variances. Sales variance, production cost variances and overhead variances are calculated as follows:

Recently an operating budget was created for Peyton Approved, a pet supplies manufacturer. The company’s operating budget is a projected forecast for the quarter July through September 2015. The budget includes specific calculations of the sales, production, manufacturing (raw materials, direct labor, and factory overhead), selling, and general and administrative operations. After actual activity was recorded and compared to the operating budget for Peyton Approved, variances were found that caused unfavorable results in the company’s total direct labor and total direct materials accounts. These variances need to be analyzed and investigated so corrective actions can be taken.

Question 1) There is some uncertain information to say that the 2004 promotion profitable. Firstly, both Brown and Janus, the consultant, calculated the variable cost by using two ways. The consultant added all expenses which have administrative cost, manufacturing overhead, advertising / promotion expense, selling expense and direct labor and raw material cost. On the other hand, Brown added only direct labor and raw material cost as a variable cost. Moreover, both of them found the sales without promotion differently. Janus worked with several companies by using a computer-generated model to forecast the number of sales without promotion,

Another expense results with budget expectations is capital purchases. Capital purchases are those that cost an organization more than $5,000. Such purchases include radiology equipment, lab equipment, computer systems. Unexpected expenses occur when equipment failure occurs and a need for new or repaired equipment arises or when unexpected volumes of patients require additional capital purchases of equipment to be made. “Working capital management is the role of the manager, in ensuring that there is adequate cash on hand to meet the organization’s needs and minimizing the cost of those resources” (Finkler et al., 2007, p. 360). Variances occur when multiple unexpected costs arise and that reserved cash is expended and needs to assume short-term loans or take away from other departments is necessary. This type of unexpected spending may be categorized as an unfavorable variance. Unfavorable variances are “variances in which more is spent than the budgeted amount” (Finkler et al., 2007, p. 501).

The biggest concern that we see coming up for the following two fiscal quarters is the performance from The Vanguard Advertising Department. The Ad department started off the year with a completely new team, all senior members had left at the end of Spring term. This has clearly affected the department to bring in the same amount of revenue as it did during the previous fiscal year. During the past two quarters (Q1 and Q2) Ad has brought in a total of $24,757. Anticipated earnings are on the conservative side with Ad expected to only earn 1.5x the amount of the previous quarters for the rest of the year. Ad should see an increase in sales during Spring term due to graduation advertising runs. Total expected Ad revenue is to reach $65,000, which

Variable overhead expenditure variance for the year is 906.25 Adverse. So for the next year organization can use more efficient cost control methods in next year, which will improve the variable overhead expenditure variance.

The provided past three years of sales data has been examined and analyzed. A sales forecast for year- four has been prepared and is included in this report.

The plastic and cedar direct materials both had unfavorable flexible-budget variances. It is unfavorable because they under budgeted the cost of the direct materials they were going to purchase. This could have been caused by a sudden increase in the cost of buying the materials, or they switched suppliers and had to pay more. The cedar also had an unfavorable price and efficiency variance, while the plastic had an unfavorable efficiency variance. In order to improve this, they need to try to stay consistent with their suppliers so that there is less of a variance. They also need to watch market trends more to see whether people are wanting to buy bird houses, because if they are, then they should budget a higher number of units sold, or vice versa. The company also needs to be more efficient on how they use their materials. For example, the workers need to not use too much or too little cedar when making a bird house, or else

Static budget variances provide an overall picture of whether planned results were achieved, and they are a useful starting point for investigating sales revenue and fixed costs. However, static budget variances make it difficult to determine whether a variance is due to a change in expected volume or to other aspects of performance.

When we look at the sales volume variance; sales quantity value has an unfavorable effect of $84,000 because of the decreased actual required hours. Again, at the sales volume variance, we can see that the sales mix variance has a net favorable effect of $144,000 that is made up of unfavorable effect of $216,000 because of the decrease from 40% to 14.28% in the relative proportion of the reengineering service from the budgeted mix and because of the increase from 60% to 85.71% in the relative proportion of the streamline production.

In 2003 the actual sales revenue is less than the budgeted sales revenue by 3%. The reason for this is falling sales volume and not falling selling price. This is because quantity variance component of sales revenue flexible budget is higher than price variance component of sales revenue flexible budget. Moreover, cost of production variance is almost 7%. This is attributed to high variances of leather costs, finishing cost and manufacturing overheads. Both variable and fixed manufacturing overheads have a variance of 6%. In case of leather, output variance is higher than price variance. This indicates that BBC has not used leather properly and there was wastage and inefficiency. Furthermore, finishing cost variance is as high as 5%. In this case, price variance (wage-rate variance) is positive (i.e. actual input price more than forecast) and output variance (efficiency variance) is negative (i.e. actual input quantity used per unit of output is less than standard i.e. efficiency improves). That is, finishing costs are rising due to external factors i.e. rising input prices despite improved efficiency.

The total expense variance was found to be $342,060. The extra hours worked created more costs than the extra revenue acquired.

Commercial Costs are showing the highest unfavourable variance of 118.9, with expenses at 78.9% over budget. We assume that Piele SA continued to manufacture goods at budgeted sales. The three main areas that Management should consider within Commercial Cost are 1) transportation, 2) Advertising and Exhibition, and 3) Other.