Reasons for Variances

Reasons for Variances

1. Sales Revenue

   • Adverse
     • Volume of sales lower leading to price cut
     • Damaged products
     • Theft
     • Staff sickness not being able to meet orders
     • Poor weather
     • Machine Breakdown
     • Political factors e.g. bombing
     • Legislative factors
     • Capacity
     • Competition
     • Existing inventory
   • Favourable
     • High demand = higher price
     • Good quality raising prices
     • Specific Events for example sporting
     • Reputation/word of mouth
     • Increased demand
     • Economic conditions - more disposable income
     • Advertising campaign
     • Media eg superfoods

2. Materials

   • Adverse
     • Higher quality = higher
     • Limited supply = higher price
     • More wastage
     • Lower skilled staff
     • Less supervision
     • Scarce resources = higher price
     • Poor exchange rates
   • Favourable
     • Negotated a lower price with suppliers
     • Got bulk discounts
     • Lower quality = cheaper prices
     • Good supervision = less wastage
     • Better trained staff
     • Special offers
     • Abundant stocks so price reduced
     • Favourable exchange rates
     • Using local suppliers saving transport costs

3. Semi-Variable Costs

   • Adverse
     • Standing Charge gone up
     • Used more
   • Favourable
     • Used less
     • Got a better deal with energy suppliers

4. Fixed Costs

   • Adverse
     • Increase in floor space therefore rising costs
     • Higher prices
     • Rise in VAT rate
     • Specialised skills required - increase in consultancy fees
     • Fixed salaries increase
     • Increased distribution costs
     • Council Tax rise
   • Favourable
     • Lower prices
     • Less waste
     • Change in depreciation value
     • Better utility provider

5. Labour

   • Favourable
     • More experienced workers working faster
     • Hiring apprentices = cheaper
     • Lower rates of pay
     • Increased automation of process
   • Adverse
     • Unexpected overtime
     • More staff to cover sickness and holidays
     • Pay more
     • Legislative changes to pay more
     • Lower skilled workers - more mistakes
     • aging workforce = more expensive