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1、 A financial analysis report for Tricol plc Outcome 3and4 Class;10E6 Name:Ma boda SCN: Candidate Num:22 Introduction To operate better in financial aspect, the management of Tricol plc asked me to analyze their financial condition then make recommendations for them. FindingsPart A () Flex budget in
2、line with actual activityTricol plc Flexed Budget for June Original budgetFlexed budgetActual resultsVariance2000 units1600 units1600 unitsF/ADirect material 80,00064,00061,6002,400FDirect labor36,00028,80035,2006,400AVariable production overhead 4,0003,2003,2000Fixed cost Depreciation1,5001,5001,50
3、00Rent and rates2,5002,5002,5000Administration overhead2,0002,0002,200200AInsurance costs2,2002,2002,400200ATotal 128,200104,200108,6004,400A() Variances calculation Direct material total variance (Standard units of actual production*standard price) (actual quantity*actual price)(4 kg*1,600*10) 61,6
4、00 = 2,400 (F) Rate of significance: (3.75%)Direct material usage varianceStandard price*(standard units of actual production actual quantity) 10* (4kg1,600) 5,600kg= 8,000 (F) Rate of significance (12.5%)Direct material price varianceActual quantity * (standard price actual price)5,600kg* 10 (61,60
5、0/ 5,600kg) = (5,600) (A) Rate of significance: (8.75%)Direct labour total variance(Standard hours of actual production*standard rate ph) - (actual hours*actual rate ph) (2hrs*1,600) *935,200=(6,400) (A)Rate of significance: (22.22%)Direct labour efficiency varianceStandard rate ph* (standard hours
6、of actual production actual hours)9*(2hrs*1,6003,520hrs)=(2,880) (A)Rate of significance: (10%)Direct labour rate varianceActual hours*(standard rate ph actual rate ph)3,520hrs*(9*35,200/3,520hrs)= (3,520) (A)Rate of significance: (12.22%)Total overhead varianceTotal standard overhead for actual pro
7、duction total actual overheads(18,000/12+2,500+2,200+2,000)- (1,500+2,500+2,200+2,400)=(400) (A)Rate of significance: (3.5%)() Report about variances Direct material varianceThe direct material total variance can be analyzed in two aspects which are direct material volume and direct material price.
8、For volume side, as calculated above, the budget volume is 6400kg; the actual volume is 5600kg. So there is 800kg variance which is favorable and each unit variance is 0.5kg. The likely reason causing the variance comes from three aspects. First of all, the company upgraded the production machinery
9、recently, and new machine may use materials efficiently, so it reduced the waste of materials. Secondly, the company switched suppliers and using higher-grade materials can decrease waste of materials too. Finally, the company has concluded a higher-than-expected wage settlement for production opera
10、tives, which will maintain employees with higher skills as well as decrease turnover of employees, and it also can increase efficiency in using materials. For price aspect, the budget price is 10 per kg, and the actual price is 11per kg, it is adverse that one pound over the budget price. The compan
11、y switching suppliers may cause the increase of negotiation cost. There may be a long-term relationship between Tricol plc and its old suppliers, so the suppliers may take lots of discounts to the firm. After changing suppliers, the discount may disappear. Furthermore, higher grade materials increas
12、ed unit price. Overall, the total material variance is favorable. 8,000 5,600=2,400. Direct labour varianceThe direct labour total variance is composed of direct labour efficiency variance and direct labour rate variance. The budget direct labour hours are 3,200hrs and the actual labour hours are 3,
13、520 hrs. There are more 320hrs needed than the budget, and each unit is 0.2hrs, which it is obviously adverse. The company upgrading the production machinery may need time for employees to adopt it. Also, employees need training time. The rebuild process of machinery consumed time too. In a word, th
14、e chargeable hours have increased. The budget direct laour hours rate is 9 per hour, the actual hours rate is 10 per hour. It is adverse that one pound higher than budgeted. It is possible caused by both internal and external factors. Higher-than-expected wage settlement may be internal reason for t
15、he variance, and new machinery may be needed to recruit new employees to operate the machinery, which also can increase the expense. For external factors, the changing of labour market may increase labour cost; the government legislation also can increase the labour cost, for example minimum pay. Both direct labou
