Application of Potential Variances
Task 2: Identifying and planning for potential variances
|The type of variance:|
Reason for the potential
|Sales volume||Sales||While formulating budget, sales volume could be predicted. This prediction may vary significantly when budget is actually initiated and is monitored||In order to prevent this variance, it is essential that proper marketing strategies be adopted that will help in boosting of sales volume|
|Sale price||Cost||While formulating budget, sale price could be predicted. This prediction may vary significantly when budget is actually put into action||In order to prevent this variance, sale price of similar products or services needs to be studied and then decision should be made|
|Profit volume||Profit||While formulating budget, profit volume is roughly predicted. This prediction may vary significantly when budget is actually put into action||In order to tackle this variance, good quality raw materials need to be purchased at a cost effective price. Sale price should be ideal and sale volume should be healthy through efficient marketing of products and services|
|Net profit||Profit||While formulating budget, net profit is roughly calculated. This prediction may vary significantly when budget is actually put into action||In order to minimize this variance, cost-benefit analysis must be carried out for project|
|Labour cost||Labour||While formulating budget, labour cost is roughly predicted. This prediction may vary significantly when budget is actually initiated||In order to negate this variance, cheap skilled labour should be arranged. According to budget requirement, labourers should be employed|
|Labour efficiency||Labour||While formulating budget, labour efficiency is roughly predicted. This prediction may vary significantly as budget progresses||In order to tackle this variance, labours should be provided periodic rest between work. Sunday must be declared as a holiday for them to refresh their body and mind|
|Material usage||Material||While formulating budget, material usage is roughly predicted. This prediction may vary significantly when budget progresses|
In order to tackle this variance, extra materials should be purchased and stored.
This will prevent from hindering of progress of budget due to scarcity of required materials
|Material cost||Material||While formulating budget, material cost is roughly calculated. This calculation may prove incorrect when budget progresses||In order to mitigate this variance, proper survey needs to be carried out regarding cost of required materials in both near and far away markets|
|Staff cost||Fixed overhead||While formulating budget, staff cost is roughly calculated. This calculation may vary when budget is initiated||In order to tackle this variance, staff requirements should be decided and pay scale of staffs should be fixed. Staffs should be appointed according to requirement of budget|
|Overhead cost||Overhead||While formulating budget, overhead cost is merely calculated. This calculation may vary as budget progresses||In order to negate this variance, a separate amount of money should be maintained. Moreover, funding sources could be arranged|
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