Table of contents



Costing approach & purpose of variance analysis2

Key findings3

Material price variance3

Material usage variance3

Labour level variance4

Labour efficiency variance5

Variable overhead variance5

Set overhead expenditure variance6

Set overhead volume variance6

Varying selling and distribution variance6

Sales variance7

Responding to publicity7


Appendix 1: Crucial findings of variance analysis9

Appendix a couple of: Profit Magin, Mark-up and sector information10



This survey provides data regarding the method used by Merinos Ltd. in costing all their new ‘Belma' overcoat. A variance research was accomplished and the record looks at the value and reason for such an examination. This statement will pay particular attention to the real key findings from your variance analysis, giving feasible reasons and implications due to the variances. This really is followed by a review of the profit margin for the item and suggestions on addressing the new publicity around the ‘Belma' overcoat. Discussion

Charging method & purpose of variance analysis

Merinos Ltd. uses absoprtion costing to price their outdoor jackets, which means that all the manufacturing costs are absorbed by the models produced. When it comes to ‘Belma' great coat this means that cost of a finished overcoat will incorporate direct supplies (e. g. leather), immediate labour (e. g. skilled labour), and both variable and fixed making costs (e. g. rent). Non-manufacturing costs are considered while period costs, which are costs usually linked to selling (e. g. celeb fee) or perhaps general administration expenses. The idea behind employing absorption costing is that that causes an overcoat to become measured at its complete price. Just because costs like hire and managers salary (fixed overheads) happen to be difficult to credit to a particular unit of output does not mean that they are not a cost of this output. Because of this such costs are allocated to products. To that end absorption priced at helps Merinos Ltd. to know the importance in the fixed costs and that ignore the fact that fixed costs must be met in the long run. [1]

Difference analysis performed for the ‘Belma' overcoat identifies to what extent the actual costs varies from the common costs which is used in an effort to identify the causes for right after between them. Difference analysis is very important, because management could use those to identify potential inefficiencies in the manufacturing procedure and it can help the managers to focus on all those areas of the operations that are not functioning since intended. To put it briefly, it can be used as an early caution for further action.

The use of regular costs provides employees with an indication of what is predicted from staff against which their overall performance can be assessed. The analysis could be accustomed to set goals, which is significant in a motivational sense to encourage staff to perform effectively. Also it could be used as being a tool pertaining to accountability for the managers. For example a bad material selling price variance may be attributed to poor buying decisions by the getting manager.

Variance analysis can be useful for cost control. That is anytime the comparision between standard costs and actual costs reveal vast and persistent dissimilarities, the situation may be investigated and action could possibly be undertaken to avoid recurrence. [2] Key results

A summary of the important thing findings of variance examination is tabulated in Appendix 1 . Material price variance

It is found...


2 Colin Drury (2006)

some Colin Drury (2006)


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