Variance Analysis of Spitzer Specialty Furniture

Variance Analysis
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Variance Analysis
* Three Weaknesses in the June Production Performance Report
* Incorrect Actual Sales Revenue
The actual sales revenue for the company needed to be corrected because the amount of money collected did not match the units that the firm sold. Since the budgeted units were 2,500 and could produce 137,500 dollars, 3,000 actual units were supposed to produce $165,000 (W1) as the sales revenue and not $161,000 as the June production performance report shows. Therefore, the report might not be beneficial as the figures Spitzer Specialty Furniture uses for comparison need to be more accurate. Flexible budgets help organizations plan, assess, and control (Davis & Davis, 2020). Unfortunately, this budget is useless as the actual results do not show the real manager’s performance. Additionally, understating the sales figure might force the bookcases product line to oversupply inventory in the future, resulting in an overall loss to Spitzer Specialty Furniture.
* Inefficient Use of Labor
The cost of direct labor for the bookcases product line is $18,000 (W3). This figure is higher than the budgeted one. The actual cost of indirect labor is also higher than the budgeted figure. Therefore, most staff are not working, so the whole corporation's performance may decrease.
* High Marketing and Administrative Costs
The product line's marketing and administrative expenditures are higher than the manager anticipated. These unfavorable costs mean that the whole corporation's profits will reduce.
* Behavioral Implications of Sara’s Remark to Ken
Sara’s remark to Ken means that the manager is underperforming according to his product line’s budget. Therefore, when proposing future budgets for his product line, Ken might understate all the expenses, resulting in incorrect profits for the firm.
* A more Informative Production Performance Report for June
Spitzer Specialty Furniture Bookcase Production Performance Report for the Month Ended June 30

Actual

Flexible Budget

Variance

Favourable(F)/ Unfavourable(U)

Sales Revenue

$161,000

$165,000 (W1)

$4...