Look back to the variance report on Brackendale presented in Chapter 14. Comment on the good and
Question:
Look back to the variance report on Brackendale presented in Chapter 14. Comment on the good and weak points of that report, in the light of the first two sections of this chapter, and suggest ways in which the report could be improved.
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Variance report From the foregoing calculations a variance report may be prepared. This brings to the attention of the production manager the main items highlighted by the process of vari- ance analysis, as shown in Exhibit 15.8. Exhibit 15.8 Brackendale Ltd: variance report To: Production Manager From: Management Accountant Subject: Variance report for July BRACKENDALE LTD Variance report During the month of July there were 8,000 units manufactured, as compared with 10,000 expected when the budget was set. Allowing flexibility for the lower level of output, there was nevertheless an adverse profit variance of 9,820 for the month. The most serious is the adverse sales margin volume variance of 3,400. The most serious cost variance is the direct labour variance, where adverse changes in labour rate contributed 1,000 and less efficient working contributed 2,000 to the total 3,000. The direct materials cost variance of 720 looks worse when decomposed into an adverse price variance of 1,520 offset partially by a favourable usage variance of 800. The variable overhead cost variance of 800 adverse also looks worse when decomposed into an adverse efficiency variance of 1,200, partly offset by a favourable rate variance of 400. Overspending on fixed overheads was 500 for the month. While the investigation of these problems is a matter for yourself, I might venture to suggest that from past experience we have noticed that a favourable materials usage variance may arise when employees are instructed to work more carefully and, as a consequence, take
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