Patryk Chruszcz Ec1526474

It turned out that the total amount of production was 10% lower than in the planned budget due to
the difficult trading condition. This number has decreased from 5000 units to 4500 units. This change
required correcting the original budget so that it was adequate to the reduced production volume.
(Table 2)

The budget for Material Usage Variance is £30,000 (Table 3) adverse. This is a significant overspend
that cannot be underestimated because it can bring significant financial losses to the company. This
excessive budget overrun could be caused by using new, cheaper material for production. Due to the
lower quality of this material, it significantly increased waste, which affected the result of this ratio.

However, the price of the new material also influences the Material Price Variance where the result
is £ 32,000 (Table 3) Favourable. The price per kilogram of material dropped by £2 (Table 1), which
turned out to be very beneficial for Matteck plc on the scale of the entire production. After adding
these variations to each other, we get a £ 2000 (Table 3) Favourable. So, the raw material they get
from the new supplier brings financial benefits to the organization. It is £24,000 throughout the
year. It is not necessary to take any action in this situation, beyond the observation whether the
quality of the material does not deteriorate and whether waste material is not increased.

The result for Labour Efficiency Variance is £10,000 (Table 4) Favourable. It is a good sign for the
company because it allows them to save funds for further development of the company. This result
could have been caused by starting a new machine that increased production efficiency. Despite the
fact that the launch of this machine lasted two weeks, it turned out to be a beneficiary for the
company. On the long run, this machine will bring Matteck plc a lot of financial money.

However, the result for Wage Rate Variance is £150000 (Table 4) adverse. This is a significant
overspend that cannot be underestimated because it can bring significant financial losses to the
company. However, this expenditure was caused by the need to hire new, trained employees, whose
salary is higher than planned in the original budget.

After scoring these two results, the sum of £5000 (Table 4) adverse should be an unsettling sign for
the company. It is a significant overspend that can not be underestimated because it can bring
considerable financial losses to a company on a long run. This result should be monitored by
managers, because in the following months it may be changed because the machine supporting the
production will be fully operational and it can significantly reduce the company's expenses.

Variable Overhead Cost Variance is £2500 (Table 5) adverse. This is an alarming sign for a company
that can not be underestimated because it can lead to serious financial troubles. This result may be
caused by the slowdown in production, which was caused by the installation of a new machine,
which was fully operational after 2 weeks from the start of assembly. When the machine is working
all month, this result can be improved, so managers should look at it.

Fixed Overhead Cost Variance is also 400 (Table 5) adverse. However, this is not a problem that the
company should take care of. This result could be caused by an increase in the rent price or an
increase in national minimum wage. This result can also be caused by a greater consumption of
electricity, which is connected with the installation of a new production machine

The installation of a new production support machine this month is the main reason why some of
the results do not look good for the company. The unsatisfactory results in the following months can
change completely because this machine is already fully functional. My recommendation is that
managers should carefully observe how the situation changes in the following months. If the
situation does not improve, it is recommended to consider obtaining new cheaper suppliers of raw
material or to obtain a cheaper workforce to reduce production-related expenses.

Table 1

original budget Actual Budget

production 5000 Production 4500

3kg at £12 per 3kg at 10 per

Direct Material kg Direct Material kg
2,5h at £8 per 2,5h at 9,5 per
direct labour h direct labour H
Variable Overheads £4 per hour Variable Overheads 47500
supervision costs 3300 supervision costs 3400
rent and rates 1000 rent and rates 1200
administration administration
overheads 2000 overheads 2100
Depreciation 3000 Depreciation 3000

Table 2

original flexed
budget budget actual budget Variance

Direct Material 180000 162000 160000 2000 Favourable

direct labour 100000 90000 95000 -5000 Adverse
Variable Overheads 50000 45000 47500 -2500 Adverse
supervision costs 3300 3300 3400 -100 Adverse
rent and rates 1000 1000 1200 -200 Adverse
administration
overheads 2000 2000 2100 -100 Adverse
Depreciation 3000 3000 3000 0 Adverse
Table 3

Material usage
Variance -30000 Adverse
Material Price
Variance 32000 Favourable
Material Total 2000 Favourable

Table 4

Labour Efficiency
Variance 10000 Favourable
Wage Rate Variance -15000 Adverse
Labour Total -5000 Adverse

Table 5

Variable Overhead Cost

Variance -2500 Adverse
Fixed Overhead Cost
Variance -400 Adverse
Total Overhead Cost
Variance -2900 Adverse