Management acounting - Essay Example

220.5 (A) W7. Material M7 usage variance = ((2,100 ?0.68) – 1,470) ?1.75 =?73.5 (A) W8. Direct labour rate variance = (7.2 ?525) – 3,675 =?105.0 (F) W9. Direct labour efficiency variance = ((2,100 ?14/60) – 525) ? 7.2 =?252.0 (A) W10. Variable overhead expenditure variance = (2.1 ?525) – 1,260 =?157.5 (A) W11. Variable overhead efficiency variance = ((2,100 ? 14/60) – 525) ? 2.1 =?73.5 (A) Budgeted fixed production overhead = 497 ? 9= ?4,473 W12 Fixed production overhead expenditure variance = 4,473 – 4,725 = ?252.0 (A) Standard hours for actual production = 2,100 ?

14/60 = 490 hours W13 Fixed production overhead efficiency variance = (490 – 525) ? 9 = ?315 (A) Fixed production overhead capacity variance = (497 – 525) ?9 = ?252 (F) b) Discuss how the operating statement can assist managers in (1) Controlling variable cost Variable cost refers to operating expenses that vary in ratio to the business activity. Examples of variable cost include in our case include Direct material, direct labor and variable production overhead. Operating statement does assist managers in controlling variable cost in the following ways.

Measuring actual cost marks the beginning of controlling cost. This is followed by variance calculation that is meant to show the difference actual and budgeted/standard costs. Managers will be given these reports on variances since they have got duty to use the report on the day to day running of the business (Riahi, 2001). The manager can use the report given to him to decide whether the company needs to take action of bringing actual costs back. The operating statements for our case will play a role in providing information to managers that helps in decision-making procedure (Coombs, et, al 2005).

The statement helps in quantifying the effect of the difference in volume between actual sales and budgeted sales. This means that comparison between budgeted cost of the actual output and the actual cost of the actual output will be made hence it helps to differentiate clearly between actual and planned performance. This helps management by exclusion because these mangers can now turn their energy on other important areas so that they can achieve the best results in relation to achieving actual performance.

Variable costs do get affected in control terms during short period of time hence an operating system for the previous month indicating variable cost variances will outline areas where the organization needs action (Coombs, et, al 2005). For instance, managers can improve labour efficiency using different ways e.g. by training or reducing staff actions that do not aid production process. For our case, direct labour efficiency variance of ?252.0, which is 7.2%, could be reduced. Direct labour variance is given by the difference between labour flexed budget and actual results.

The managers can break this down into labour rate variance and labour efficiency variance. This will help the company know what they paid for hours they actually used in comparison to what they budgeted for (Coombs, et, al 2005). On the other hand labour efficiency variance will indicate how much labour the organization used compared to what it thought it could have used. This can be illustrated from the analysis of the company’s operating statement for instance we are given direct labour rate variance to be ?

105 which is favorable according to Ash plc producers. On the other hand, direct labour efficiency variance in the same company is ?252 which indicates adversity in the running