Task 2 – Identify and plan for
Variances are the difference between the allocated budget and actual performance.
The types of potential variance include:
• sales volumes
• sale price
• material costs
• material usage
• staff costs
Create contingency approaches and plans to minimise the impact of any potential variances.
At least two potential variances must be identified together with their type and the
contingency plan suggested for each.
|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|