Additional Budget Components and Performance Evaluation

...

of activity budget, to ensure adequate cost control and to establish cost control measure.

Honey Bear Confections actual output is 10,000 bags instead of the planned 12,000 bags, a default variance of 2000 is expected since the budgeted variable overhead is more than the actual overhead.

However, there is the urgent need to investigate the significant difference of 17% in the production of line and the consequence this would have on sales. Besides, the full plant capacity should also be investigate if the budgeted and actual production are anywhere near this plant capacity.

Furthermore the unfavorable differences in indirect labor (17%), supplies (15%) and utilities (15.5%). Corrective action would need to be taken to prevent a reoccurrence; besides, subsequent month’s budget may need to be reviewed for realism and a reflection of current realities, taken into consideration. The employees need to be properly briefed and under performance traced to any employee; a caution or reprimand is recommended.

Part 3:

The HR manager would make fully use of variance analysis in an environment, where there is an operating, consistent application and monitoring the operational plan. The consequence of a deviation from the plan would result in unfavorable variances in labor costs

Situation does arise, during production running at optimum capacity, to sustain this, the plant manager would prefer to throwing in more hands rather than exploring effective ways to expand plant capacity. While this is strategic it would obviously add to overhead cost, the HR manager on a regular basis check the utilization of additional and match with demand and possibly suggest other best alternative in order to control cost.

Line Managers should latch and utilize variance analysis as a response to preventing or reducing to the barest minimum the occurrence of an undesirable loss of revenue that is attributable to underperformance both by the direct and support employees. The corrective measures deployed should address current undesirable situation and drive for sustained performance and continuous

References

http://www.accountingtools.com/flexible-budget

http://www.cimaglobal.com/Documents/Student%20docs/2011_CBA/Gsteven_flexiblebudgeting_C01_july2012.pdf