CBH Associates is reeling from a decline in profits because of competition. For its most recent year-end, its controller has prepared the following variance analysis and concluded that the company has done very well controlling its costs: Budgeted Actual Variance Variable Costs: Professional labour $ 1,000,000 $ 940,000 $ 60,000 F Travel 50,000 40,000.00 $10,000 F Supplies 100,000 90,000.00 $10,000 F Fixed Costs: Professional labour 400,000 405,000 -$5,000 U Facilities Csots 250,000 265,000 -$15,000 U Insurance 80,000 78,000 $2,000 F Total Costs $ 1,880,000 $ 1,818,000 $ 62,000 For the year CBH Associates projected that it would generate $2,000,000 of revenues; it actually generated $1,800,000. The company has consulted with you for help in understanding what is happening. You decide to address the following items. (Calculate on excel) Comment on the usefulness of the report above in performing cost control evaluation. Prepare an alternative performance report to enable more meaningful cost control evaluation (use flexible budgeting and identify volume and price variances).
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
CBH Associates is reeling from a decline in profits because of competition. For its most recent year-end, its controller has prepared the following
| Actual | Variance | |||
| Variable Costs: | ||||
| Professional labour | $ 1,000,000 | $ 940,000 | $ 60,000 | F |
| Travel | 50,000 | 40,000.00 | $10,000 | F |
| Supplies | 100,000 | 90,000.00 | $10,000 | F |
| Fixed Costs: | ||||
| Professional labour | 400,000 | 405,000 | -$5,000 | U |
| Facilities Csots | 250,000 | 265,000 | -$15,000 | U |
| Insurance | 80,000 | 78,000 | $2,000 | F |
| Total Costs | $ 1,880,000 |
$ 1,818,000 |
$ 62,000 |
For the year CBH Associates projected that it would generate $2,000,000 of revenues; it actually generated $1,800,000.
The company has consulted with you for help in understanding what is happening. You decide to address the following items. (Calculate on excel)
- Comment on the usefulness of the report above in performing cost control evaluation.
- Prepare an alternative performance report to enable more meaningful cost control evaluation (use flexible budgeting and identify volume and price variances).
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
