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What causes variances? - Coggle Diagram
What causes variances?
Direct materials
what caused the variances
Did we
use
more or less quantity of materials than planned?
Did we change suppliers?
Did we buy a new machine that used the materials more efficiently?
Were there more mistakes made in the factory?
Did we use the materials efficiently in the factory?
Did we buy a poor quality material that was harder to use and we had more waste?
Did we
pay
more or less to buy the materials than planned?
Did we buy more expensive or cheaper materials?
Did the price of our materials change due to more overall demand for the materials or less supply or a combination of both?
what the business decisions need to be made?
Could we get a cheaper price if we buy in bulk?
Review the production process, can we use the materials more efficiently?
Should we find a new supplier to buy a better quality material or a cheaper material?
Direct labour
what caused the variances
Did our employees work
slower or faster
than expected?
How experienced and skilled are our employees?
Did we
pay
employees more or less per hour than expected?
Is labour scarce?
Do we prefer to use more experienced and skilled labour which costs more?
Did government regulation require us to increase the amount paid?
what the business decisions need to be made?
What will be more profitable for our business: more experience, qualified labour that costs more or less experienced, cheaper labour?
When the budget was created, did it include some budget slack to make it easier for employees to get a favourable result (this could apply to all of these areas)?
sales
what caused the variances
Did price change in response to market research?
Are we trying to market our product as a more 'luxury' product with a higher price?
Economic situation.
Impact of Covid-19 or other current events.
Have our costs increased and we are passing them onto customers?
Is there a new competitor?
Have we been discounting or offering sales to customers to maintain our planned level of sales units.
Competitors sales prices
what the business decisions need to be made?
Do we need to plan for a change in sales price for the next budget?
Do we need to spend more on marketing?
Is this a permanent change or a one-off?
Overhead
what caused the variances
Did we get solar panels, so pay less for electricity?
Did the factory rent increase unexpectedly?
what the business decisions need to be made?
Review each cost to see if any cost savings can be made in the future.
Selling and administration
what caused the variances
Did we
spend
more or less than planned?
Was there a change in postage costs?
Did we change our types of advertising or how much we spent?
what the business decisions need to be made?
Review these costs to ensure that the money spent on selling and administration is effective and efficient.