3.0 Variance Analysis
3.1 Flexible-Budget Variance Analysis
In Barnes Scuba Diving case, the main comparison for the flexible-budget variance analysis would be between the actual results and flexible budget. Static budget would not be useful for this comparison due to the different sales unit output which may result in a misleading and inaccurate result comparison. With reference to the Flexible Budget Section attached in Annex X, Flexible-Budget Variance for Revenues was identified to be a favourable variance of $50,400 due to the fact that there was an increase of 216 participants on top of the budgeted 1800 participants and also an additional increased in course fee of $25 on top of the budgeted $350(selling price per unit). This favourable variance was also supported with the calculation of the selling price variance. A closer look at the variance components reveals some major deviations from plan. Contradictory to the favourable variance for Sales Revenue, the overall contribution margin (-$9057) and operating profit (-$12,057) reflected unfavourable variances instead. These unfavourable variances were caused by the more than required variable resources being consumed with Barnes bearing responsibility for all unforeseen situations that happened and absorbing the additional costs incurred. Actual variable costs increased from $218 to $247.50, causing an unfavourable flexible-budget variable cost variance of $59 457. The next section, 3.2 Variable and Fixed Variance Analysis, will look into the specific causes of this increased in cost and resources consumed. Understanding the reasons why actual results differ from budgeted amounts can help Barnes better manage its costs and pricing decisions in the future. If Barnes have not been able to pass these costs on to customers, losses would have been considerable in the future.
3.2 Variable and Fixed Variance Analysis
3.2.1 Sales Volume and Selling Price Variance Analysis
Both Sales Volume and Selling Price variances reflected favourable variance as there was an increase in both the selling price per course and also increase in total number of participants (units). The increase in number of participants is not within Barnes Scuba Diving span of control, but it ultimately is an advantage to the company. However, the increase of selling price per course was dictated by the company and the reason for the increase was not justified in the case. The case also did not reflect any complaints from customers or even loss of customers due to the increase selling price. Therefore, Barnes may consider to continue setting the selling price at $375 or even compare this price with competitors to ensure it is not selling way below market rate which may result in forgone profit opportunities.
3.2.2 Direct Material and Indirect Material Variance Analysis 220.127.116.11 Certificates
The unfavourable price ($3,628.50) and quantity ($11,142) variances of certificates were caused mainly by the additional 403 certificate cards being consumed and increase of $1.50 per card by PADI. The additional 403 cards being consumed due to incorrect spelling of customer’s names could have being avoided as it was a controllable situation by Barnes. Barnes’ administrative head should have being responsible and check on the work of Mia Fault before submission of the names, especially if she was a new staff. Therefore direct material cost of $7,858.50($19.50x403) could have been avoided if the mistake was prevented. The additional cost of $1.50 more than the standard cost of $18 increased by PADI was an external factor and Barnes may not have control over it. However, Barnes may look into negotiating with PADI to forgo or lower the additional cost per certification cards due to the bulk purchases of cards from PADI annually. This negotiation if successful could have saved Barnes up to $2,700 ($1.50x1800 budgeted sales units).
18.104.22.168 Open Water Manuals
Price variance for the manuals reflected favourable...
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