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Finance and Accounting : Case Study: Manchester Meerkat Company - Essay Example

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Finance and Accounting : Case Study: Manchester Meerkat Company

In this case, a budget is a financial preparation that covers a specific period of business operations (Berry et. al. 2006). The budget usually shows different expectations of expenditure and revenues of a business. Under normal circumstances, a large organization creates departmental budgets while small organizations create a single budget for the whole firm. The comparison between the budget estimates and the end results of all business operations gives the management a variance. There are two main causes of variances in a business’s budget. One of the main causes is spending more than the budget allows. This could be due to the fact that the management budgeted for less than required; there was mismanagement of funds or general poor planning. Secondly, there may be an unexpected emergency in a business that may cause a major drift in the use of funds from the budget (Berry et. al. 2006). Mechanical damages to a major processing asset for instance could lead to an urgent purchase of another one in order to maintain the expected level of production. As an example, the Manchester Meerkat Company (MMC) suffered a blow when floods drained the fibre filling. This caused an emergency spending that may have resulted to variance in the budget. This would cause destabilization in the budget hence a variance. These variances can either cause adverse effects to an organization if ignored or lead to success in business if noted and improved. This is because there exists two categories of variances namely favorable and unfavorable variances. The favorable variances occur where the results of business operations are better as compared to the expected results. On the other hand, the unfavorable variances occur whenever the end results of business operations are worse than expected results. Therefore, managers always carry out variance analysis in order to look-after-the fact at what caused the difference. Furthermore, according to Blocher & Cokins (2005) this analysis helps the management to pinpoint the effects the variances have to the business and how to correct or improve on them. The identification and isolation of the variance by the managers of an organization is crucial because diverse causes will dictate different remedies or opportunities. Furthermore, the causes of variance fall under the controllable and the uncontrollable categories. The controllable factors are changeable by the management. Poor planning and labor costs for instance are controllable factors where the management can correct by use of better planning and monitoring methods. On the other hand, there are other external factors that are uncontrollable. These factors are determined by outside entities of an organization. An increase in utility prices and/or an increase in the cost of raw materials for example are uncontrollable factors that may cause variance (Clinton, Matuszewski & Tidrick 2011). In all business organizations, there are people in the management who are responsible for various operations. The operations may be delegated to the relevant departments in order to ensure a smooth running of the business. In our MMC case, the direct materials price variance is placed under the sales manager. The reason is that the manager determines the prices paid for goods, the quantity in units ordered, the delivery price conditions and the quality of the purchased materials. Therefore, ...Show more

Summary

CASE STUDY: MANCHESTER MEERKAT COMPANY Name Tutor Course Date Case Study: Manchester Meerkat Company The main objectives of any business are to create profits, minimization of costs of production and stability that ensures continuation of operations. However, these objectives are faced by various challenges in the dynamic business world…
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Finance and Accounting Essay: Case Study: Manchester Meerkat Company essay example
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