You are a manager for a pet supplies manufacturer. This responsibility requires

Question

You are a manager for a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. Using the workbooks and budget variance report you created for you will make recommendations about possible changes. You will look at the possibility of making some components of one product instead of buying them, and you will determine how to evaluate the company as a whole and managers in particular. You will create a budget analysis detailing your findings.

Specifically, the following critical elements must be addressed in your analysis:

a) Budget Process and Variances

1. Discuss the initial budget process, the variances, and potential reasons for the variances.

2. What are the changes you think the company should make based on the variance analysis? What will the changes accomplish?

3. What are the ethical considerations of the changes you have selected? Why are you recommending these particular changes?

Explanation / Answer

(1).

Initial Budget process;

It refers to the set of process which is required to make a budget for a business entity. As we know that budget is a standard for a firm & company and all actual efforts are bind with these standards hence preparation of budget is very important task.

Thus budget processs start with the collection of related historical data after collection of historical data we need to study present conditions. After knowing about past data and gathering information about the present conditions we need to make projections about the future. So we can say that budget process is a systematic process which helps in setting standards for revenue, expenses etc.

The variances;

Variances are the differences between actual performance and pre-determined standards (budget). So we can say whenever our actual performance is less or more than budgeted data then difference will be known as variances.

Potential reasons of the variances;

There may be several reasons for the variances. Such reasons may be as follow;

1. Actual quantity produced may be low or high than budgeted quantity.

2. Price of raw material purchased may be low or high in compare to budgeted price.

3. Actual labor hours used may be low or high in compare to budgeted labor hours.

4. Actual wages rate may be low or high in compare to budgeted wages rate.

5. Labor efficiency may be low or high in compare to budgeted efficiency.

6. There may be some idle labor of idle capacity also etc.

(2).

After knowing actual variances, it is responsibility of the manufacturing manager to study all variances and make required changes either in the budgeted data or improve actual causes of the variances.

Suppose if the budgeted data are very high or very low then manufacturing manager should revise it’s budgeted data because revision of these budgeted data is necessary otherwise there always will be a gap between actual and budgeted data.

Apart from this if manufactuing manager also should take corrective actions for removing the actual variance like;

·        Should try to minimize actual excess quantity used.

·        Should try to maintain reasonable actual price of the purchased raw materials.

·        Should try to maintain labor efficinecy so that labor efficiency variance can be kept under control.

·        Should try to keep wages rates under control.

·        Should try to use idle labor or other idle capacity of the firm etc.

(3).

It is ethical duty of the manufacturing manager that he or she should not go beyond the ethics of own profession and also should not violate ethics of the firm. Manufacturing manager should set genuine budget data so that no extra burden can be shifted on the subordinates. Apart from this manafactusing manager should not use unethical way to improve variances like;

·        Should not reduce the number of actual workers unless it is real needed.

·        Should not estimate over or under the actual performance to meet its standards.

·        Should not intentionally cut the wages rate, that acutely affect the workers.

·        There should not be any type of suppression of actual data to hide the actual results. Because normally it was seen that for showing their performance much better manufacturing managers use this type of practices but these practices are not ethical.

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