The operating statement Essay Example | Topics and Well Written Essays - 1000 words

The operating statement - Essay Example varying cost argon costs are those, which vary with the level of bodily function while fixed costs are those, which are constant irrespective of the level of activity. However, the increase or decrease of fixed costs is not related to the level of activity alone as they may though change over a period. Vari able-bodied costs on the other hand are directly related to the cable activity they include costs such as those for raw materials and inventory. They vary in the sense that the more of separately you need in turnout the more the costs will increase (Czopek 2004). When the budgeted of these costs is more than the actual, whence the discrepancy is termed as an un lucky and a control measure must be put in place in actual/real time (Czopek 2004). The operation statement will therefore financial aid the management in identification of each of the costs, when they are favorable as well as when they are uncomely and formulate the control mechanisms for normal operations. As there is no single direct demeanor or strategy of cost management and control, the mangers will be forced to examine the whole line of reasoning strategy and make a determination of how to achieve a cost reduction without interfering with the business operations. Variable cost control Variable costs will rise with expansion in production and fall when production falls this is quite useful for effective decision-making. They include costs such as those for raw materials, packaging and direct labor (Czopek 2004). The operating statement shows clearly a Budgeted gross cyberspace of 18339.30 pounds. As indicated by the variable costs classs, they are adverse as shown - Sales volume salary variableness = (2,130 2,100) ? 8.61 = ?258.3 (A) and Sales price variance = (15.0 14.5) ? 2,100 = ?1,050.0 (A). Material M3 price variance = (1.55 ? 1,050) 1,680 = ?52.5 (A), Material M3 usage variance = ((2,100 ? 0.6) 1,050) ? 1.55 = ?325.5 (F), Material M7 price variance = (1.75 ? 1,470) 2,793 = ?220.5 (A) and Material M7 usage variance = ((2,100 ? 0.68) 1,470) ? 1.75 = ?73.5 (A). Direct labor rate variance = (7.2 ? 525) 3,675 = ?105.0 (F), Direct labor efficiency variance = ((2,100 ?14/60) 525) ? 7.2 = ?252.0 (A), Variable overhead expenditure variance = (2.1 ? 525) 1,260 = ?157.5 (A), Variable overhead efficiency variance = ((2,100 ? 14/60) 525) ? 2.1 = ?73.5 (A). In order to achieve the budgeted profit, the management will get to to do something about the adverse variable cost variances, which include those for labor, raw material in equipment casualty of material usage and the variable overheads. Material M3 whose price variance is adverse with its usage favorable, the management dope look for a cheaper substitute of the same material to curb the negative variance. Depending on the cause of adverse material price variance as indicated by material M7, management will find out, if it is caused by changes in purchase pric es, they can find a substitute. If it is caused by substitution of the original with a saucy material, the management will decide to go back to the original raw material. The management by helper of the operating statement will be able to device other ways of controlling the adverse material cost variance by deciding to look for materials which have cash discounts and buying from suppliers who domiciliate transportation and storage as after sales services. Direct labor rate variance is favorable with direct labor efficiency variance being unfavorable at 252.0 pounds. The management is therefore able to know the causes of