Unit 13 Assignment 1 – M2.

Analyse the reasons for the variances in given scenarios.

Amina Begum
Teacher: Rahela

M2. Analyse the reasons for the variances in given scenarios (Links back to P3).
(1) Firstly, I will be discussing sales. I can encounter that the budget given was £126,000 and
the actual sales came to £124,000. I did the calculation £126,000-£124,000 which came to
£2,000 adverse because the sales were not as high as they expected them to be. The sales
are lower because restrictions took place due to the pandemic which resulted in the public
to stay indoors and lose the wants and needs of buying things as it was not necessary. To
reach the expected budget, the business should introduce new products by creating a
survey using social media. From this, their sales can increase as they know their customer
needs. Another way they can reach their budget is to introduce promotion methods which
include offers. They will promote these offers by creating leaflets, through social media and
putting displays outside the store. Offers are a wonderful way to increase sales because they
are appealing by their cheap prices.
(2) The plastic materials flexed budget was £25,560 and the actual amount spent was
£20,000. This left £5,560 favourable because the money is less than expected it to be. Less
materials may have been used because there was a demand for less plastic items such as
plastic cups, plastic plates (etc). This was due to lockdown restriction which meant less
people were outside and required these items. To reach the expected budget, the business
should recycle plastic so that a fewer raw materials are needed for the making of new
products. Recycling is especially important as it reduces pollution, saves energy, saves
money, promotes a more sustainable lifestyle, and brings people together. It is attractive to
customers that businesses recycle plastic as they protect natural resources more and the
environment. A company that has an understanding on sustainability, is likely to approach
friendly and repeat customers.
(3) The plastic magnets flexed budget was £4,896 and the actual amount spent was £2,400.
This is the same as the plastic materials because it left a £2,496 favourable and spent less
materials than they anticipated. They may have used less magnets because due to the
restrictions, less people did not see a need in buying them which showed a decrease in
demand and customer needs. To reach the expected budget, the business should introduce
new magnets and create magnets of colour and design. This makes it more appealing to
customers and would increase their demand of magnets because of how unique they are
and would elevate the number of sales and customer reviews.
(4) The direct labour flexed budget was £16,794 and the quantity spent was £9,500. This left
a £7,294 favourable as they spent less direct labour such as the wages of workers. The cause
of direct labour decreasing may be due to the global pandemic as it left many people stuck
at home because of COVID and many who had lost their jobs because of the global
pandemic which led to supervisors spending less on their workers. To reach the expected
budget, the business should introduce remote working for the workers. This gives the
opportunity to still work during these tough times and continue to earn a financial income.
Employees will benefit from this because they are able to work from the access of their
home and their money will increase because despite the restrictions, they are working still.
(5) For the variable overheads, the budget given was £4,194 and the actual money spent
was £16,000 which leaves a £11,806 adverse. The fact that the spending has increased is
because as the rise of production increases, variable overheads increase. The cause for this
increased variable may be because some shops are still opened within the pandemic which
leads to the responsibility of attracting customers and making the atmosphere suitable. This
implies that businesses during COVID must work hard and increase their spending to
increase their production by buying resources such as, raw materials, production supplies
and utilities to continue running their business. To reach the expected budget, the business
should train their employees well which will lead to higher efficiency for the business and
will keep the variable overheads low. Making sure your employees know their role and are
dependable leads to the business moving at a fast past and decreasing the overheads which
reaches their budget.
(6) Fixed overheads have a flexed budget of £8,750 however £8,800 is what was spent
which makes it 50 adverse which is more than expected. Although fixed costs remain
constant every month, one situation where they may have increased is due to the company
expecting more sales than expected. The only time fixed overheads may change is when
sales increase unexpectedly. Since COVID has shut down many shops of businesses, owners
have had to result to online shopping which has been especially useful as it is an alternative
that is efficient. The increase in sales due to the global pandemic and introducing online
shopping would change fixed overheads. To reach the expected budget, the business should
create a Gantt chart with a list of utilities for each month. This ensures that the business
knows what to pay each month and can remain constant.
(7) Total costs have a budget of 60,244 and what was spent is £56,700 which left £3,544
favourable. This reduction may be due to a decrease in costs for materials, employees, and
operating expenses. There was no longer a demand for products in sales directly sold in-
store because of lockdown, which attributed to a decrease in costs of running stores and
paying for employees. Although this may have had an impact on sales, online shopping
became reliant on by many customers, a service which would not require a company to
spend as much towards as the maintenance of a store. As online shopping was introduced,
this allowed the business to increase their sales and therefore, their total costs can be
increased to reach the budget because of the cost of setting up the website and advertising
methods. To increase costs, spending money on advertising is perfect because the business
has a new approach through different platforms to spread their business. These can have a
great impact on the business and with these methods, they are able to reach their budget of
total costs.
(8) The operating profit was £65,756 flexed and £67,300 was spent which makes it £1,544
favourable. This may be due to the decrease in employees required during the pandemic,
creating a reduction in payments towards the employee payroll. Furthermore, costs of
producing good such as plastic was also reduced. Therefore, the operating profit may have
increased as less was spent on operating expenses. To reach the expected budget and
decrease operating profit, the business should consider switching to remote working. This
makes it easier and is cheaper because the increase of overhead costs is connected to the
physical office space which operates a lot of money due to the use of technology, lighting
etc. Remote working is a great idea because the business can lower their overhead costs
hugely and because of COVID, they can work at a place knowing that they will be safe from
catching the virus.