can you please comment on post below as soon as possible

How does variance analysis help in continuous improvement?

Since variance analysis is the difference between actual costs and budgeted costs it can always be used to improve a company's operations. For example, if a company budgets 100000 in labor for March in 2017 but only use 80000 the next year they can look back and make a more accurate budget based on how much labor they used. This is only one example of many, but variance analysis is used to determine the difference between a budget and actual costs. Knowing this information, a company can accurately budget and use money in places that they need it rather than have excess in certain areas that they don't need it.

Q2: The difference between practical capacity and master-budget capacity utilization is the best measure of management's ability to balance the costs of having too much capacity and having too little capacity." Do you agree? Explain.

I do not fully agree with this statement because practical capacity measures the manufacturing costs like labor, machine hours, etc minus the ideal amount that should be used. In a sense management should try and budget an accurate amount of manufacturing costs but master-budget capacity utilization is consumer driven and based off the expected amount of capacity needed for the budget. Since master-budget capacity is consumer driven that is more focused on revenue that can be earned during the period where as practical capacity accounts for costs that should be used to make a product.

Sources

https://www.dummies.com/business/accounting/cost-accounting-how-to-use-normal-and-master-budget-capacity/

https://www.accountingcoach.com/blog/what-is-practical-capacity

Comments

Expert Answer

An expert answer will be posted here