Budget Variance Report

With a purpose to improve the effectiveness and lesse the waste, the company Peyton Approved aims to review its operating budget in order to conduct an investigation of any declines in its budgeting. This should uncover whether the company is working to have profit or it has only loss. Budget, that is considered to be a financial plan of the company’s business activities, turns out to be a handybusiness tool for accounting managers that helps to review business expenses and eliminate spare activites. Budgeting helps to stream business operations towards profit (Garrison & Noreen, 2003).

Buget variance helps to determine if a difference between the standard and the actual expenses exists (Robinson et al., 2006). For a budget variance that has a gerater actual revenue that standard revenue and the actual expense is less than the standard, the budget is favorable for the organization (Gitman, Joehnk, & Pinches, 1985).

Analysis

From the budget variance analysis of Peyton Approved, it is obvious that only cost/ price variance of direct labor budget is favorable to the company, while the rest budget variances are unfavorable. The cost of labor hour is less than the standard cost, which leads to a favorable budget. On the other hand, direct labor efficiency variance and the overhead variance are not favorable to the company because more labour hours are required than the budgeted hours due to inefficient management of work and labor (Kimber, Grenier, & Heldt, 1997). Again, due to many obstacles in production process, the actual labor hours required for production were more than the estimated hours. Idle time in production could not be avoided. Total variance is also unfavorable to the company.

Recommendation

To exploit the lower rate of labor per hour the management should identify the presence of the bottleneck alogn the workflow (Randolph, 2014). It should train its workforce and recruit more efficient staffs to increase work output and to increase productivity.

Conclusion

From the budget variance analysis, it is obvious that Peyton Approved need to improve its labour utilization as well as improve their efficiency. Apart from the direct labor cost per hour variance, which is coming from reduced price of labor, the company is failing to achieve any advantages from the budget planning.

References

Gitman, L. J., Joehnk, M. D., & Pinches, G. E. (1985). Managerial finance. New York: Harper & Row.

Kimber, R. J., Grenier, R. W., & Heldt, J. J. (1997). Quality management handbook. New York: Marcel Dekker.

Randolph, R. P. (2014). How to make a budget.

Robinson, P., Garden, G., Cleese, J., Hemingway, J., Video Arts Limited, & Training Point.Net. (2006). Budgeting. U.K: Video Arts.

Seal, W. B., Garrison, R. H., & Noreen, E. W. (2015). Management accounting. London: McGraw-Hill Higher Education.