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PART A
1. OPERATING STATEMENT FOR CLIMBING EQUIPMENT PLC – DECEMBER 2009

FLEXED ACTUAL VARIANCES

BUDGET TOTAL PRICE/ RATE/ USAGE/

EXPENDITURE EFFICIENCY

Non-financial
data:

pairs: 1850 1850

Direct
materials

3mm steel 370 390 (20)

plate (m2)

Self-grip bolts 11100 11250 (150)

12mm 29600 30100 (500)

diameter steel
rings

Non-slip 7400 7800 (400)

buckles

Steel fabric 44400 46000 (1600)

rivets

10mm nylon 7400 7200 200

webbing (m2)

Direct labour 2312.5 2220 92.5

(hours)

£ £ £ £ £

101750.00 89725.00 (12025) (12025) nil

Sales
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Less costs:

Direct
materials

3mm steel 6105.00 6240.00 (135) 195 (330)

plate

Self-grip bolts 1110.00 1125.00 (15) nil (15)

12mm 1480.00 1505.00 (25) nil (25)

diameter steel
rings

Non-slip 4070.00 3900.00 170 390 (220)

buckles

Steel fabric 2220.00 2300.00 (80) nil (80)

rivets

10mm nylon 13320.00 12600.00 720 360 360

webbing

Direct labour 41625.00 40515.00 1110 (555) 1665

contribution 31820.00 21540.00 (10280) (11635) 1355

Less

Fixed 12400.00 13870.00 (1470) (1470) Nil

overheads

Net profit 19420.00 7670.00 (11750) (13105) 1355

CALCULATIONS:
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STEPS FOR TOTAL PAIRS OF DIRECT MATERIAL & DIRECT LABOUR

TOTAL SALES IS 1850 PAIRS

1. 3mm Steel Plate

Quality per pair =0.2 m2
TS*QP = 1850 * 0.2m2 = 370m2

2. Self-Grip Bolts
Quality per pair =6
TS*QP =1850 * 6 = 11100

3. 12mm Diameter Steel Rings

Quality per pair =16
TS*QP = 1850 * 16 = 29600

4. Non-Slip Buckles
Quality per pair =4
TS*QP = 1850 * 4 = 7400

5. Steel Fabric Rivets

Quality per pair =24
TS*QP = 1850 * 24 = 44400

6. 10mm Nylon Webbing

Quality per pair =4
TS*QP= 1850 * 4 = 7400m2

7. Direct Labour
Quality per pair =1.25hours
TS*QP= 1850 * 1.25 = 2312.5 hours

STEPS FOR SALES TOTAL REVENUE

TOTAL SALE IS 1850 PAIR

1. Flexed Budget
Selling price per pair=55.00
TS*SP= 1850 * 55.00 = £ 101750.00

2. Actual
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Selling price per pair=48.50

TS*SP= 1850 * 48.50 = £ 89725.00

STEPS FOR TOTAL DIRECT MATERIAL COSTS

1. 3mm Steel Plate

Total unit=370
Standard price = £16.50 m2
TU*SP = 370 * 16.50 = £ 6105.00

2. Self-Grip Bolts
Total unit=11,100
Standard price =0.10
TU*SP= 11100 * 0.10 = £ 1110.00

3. 12mm Diameter Steel Rings

Total unit=29600
Standard price =0.05
TU*SP= 29600 * 0.05 = £ 1480.00

4. Non-Slip Buckles
Total unit=7400
Standard price =0.55
TU*SP= 7400 * 0.55 = £ 4070.00

5. Fabric Steel Rivets

Total unit=44,400
Standard price =0.05
TU*SP= 44400 * 0.05 = £ 2220.00

6. 10mm Nylon Webbing

Total unit=7400
Standard price =1.80
TU*SP = 7400 * 1.80 = £ 13320.00

7. Direct Labour
Total labour hours=2312.5
Standard price = 18/hour
TL*SP = 2312.5 * 18 = £ 41625.00
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STEPS FOR TOTAL ACTUAL COST FOR NYLON WEBBING

1. 10mm nylon webbing

Total Actual Units=7200
Actual Price per 10mm=£1.75 m 2
TA*AP= 7200 * 1.75 = £ 12600.00

STEPS FOR TOTAL ACTUAL COST FOR DIRECT LABOURS

Total Actual Labour Hours =2220

Actual rate per labour hour =18.25/hour
TA*AR= 2220 * 18.25 = £ 40515.00

STEPS FOR PRICE VARIENCE

NOTE: A =adverse, F= favourable.

1. Sales Variance
Actual price=48.50
Standard price=55.00
Actual quantity=1850
(AP – SP) * AQ = (48.50 – 55.00) * 1850 = £ 12025 A

MATERIAL PRICE VARIENCE

Material price variance= (SP - AP) AQ

1. 3mm Steel Plate

Standard price =£16.50/ m2
Actual quality =390
Actual price = £6240/390=16/ m2

MVP = (16.50 – 16.00) * 390 = £ 195

2. Self-Grip Bolts
Standard price =£.10
Actual quality =11250
Actual price = £1125/11250=£.10

MVP = (0.10 – 0.10) * 11250 = Nil

3. 12mm Diameter Steel Rings

Standard price =£.05
Actual quality =30,100
Actual price = £1505/30,100=£.05

MVP= (0.05 – 0.05) * 30100 = Nil

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4. Non-Slip Buckles
Standard price =£.55
Actual quality =7800
Actual price = £3900/7800=£.50

MVP= (0.55 – 0.50) * 7800 = £ 390 F

5. Steel Fabric Rivets

Standard price =£.05
Actual quality =46000
Actual price = £2300/46000=£.05

MVP= (0.05 – 0.05) * 46000 = Nil

6. 10mm Nylon Webbings

Standard price =£1.80/ m2
Actual quality =7200
Actual price = £12600/7200=£1.75/ m2

MVP = (1.80 – 1.75) * 7200 = £ 360 F

STEP FOR DIRECT LABOUR RATE VARIANCE

Standard rate =£18/ hour

Actual hours =2220
Actual rate= £18.25/hour

LRV = (18 – 18.25) * 2220 = £ 555 A

QUANTITY VARIANCES

MATERIAL USAGE VARIENCES

Material usage variance = (SQ - AQ) * SP

NOTE: SQ= standard usage, AQ= actual material, SP= standard price

1. 3mm Steel Plate

Standard usage=0.2 m2
Standard price=£16.50 m2
Actual material=390
Standard usage=1850*.2 m2 =370

MUV= (370 - 390) * 16.50 = £ 330 A

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2. Self-Grip Bolts
Standard usage=6
Standard price=£.10
Actual material=11,250
Standard usage=1850*6 =11,100

MUV= (11,100 – 11,250) * 0.10 = £ 15 A

3. 12mm Diameter Steel Rings

Standard usage=16
Standard price=£.05
Actual material=30,100
Standard usage=1850*16 =29,600

MUV= (29600 - 30100) * 0.05 = £ 25 A

4. Non-Slip Buckles
Standard usage=4
Standard price=£.55
Actual material=7800
Standard usage=1850*4 =7400

MUV = (7400 - 7800) * 0.55 = £ 220 A

5. Steel Fabric Rivets

Standard usage=24
Standard price=£.05
Actual material=46,000
Standard usage=1850*24 =44,400

MUV= (44400 - 46000) * 0.05 = £ 80 A

6. 10mm Nylon Webbing

Standard usage=4
Standard price=£1.80 m2
Actual material=7200
Standard usage=1850*4 =7400

MUV = (7400 - 7200) * 1.80 = £ 360 F

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STEP FOR DIRECT LABOUR EFFICIENCY VARIANCE

Standard hour=1.25/hour
Standard rate=£18/hour
Actual material=2,200
Standard usage=1850*1.25 =2312.50

LEV = (2312.5 - 2220) * 18 = £ 1665 F

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B)
MEMORANDUM

TO: Climbing equipment plc Production Director

FROM: Climbing Equipment Plc

DATE: 09 January 2010

SUBJECT: Performance of Ace Crampons work in December 2009

This memo is to tell that role of Ace crampons in December 2009 to the Climbing equipment plc the
production director.

Body of letter

The role of Ace crampons in December 2009.here we have attached a clear financial report on ace
crampon including price variance and usage.

Report of Ace crampon

SNO DESCRIPTION AMOUNT

1 ACTUAL NET PROFIT 7670.00
2 FLEXED NET PROFIT 19420.00
3 VARIANCE (11750.00)
ANALYSIS OF VARIANCE
DESCRIPTION TOTAL PRICE USAGE
1 SALES (12025)
2 SALES NET VARIENCE (12025)
DIRECT MATERIALS:
1 3MM STELL PLATE (135) 195 (330)
2 SELF-GRIP BOLTS (15) 0 (15)
3 12MM DIAMETER STEEL RINGS (25) 0 (25)
4 NON-SLIP BUCKLES 170 390 (220)
5 STEEL FABRIC RIVETS (80) 0 (80)
6 10MM NYLON WEBBING 720 360 360
7 DIRECT LABHOURS 1110 (555) 1665
8 CONTRIBUTION (10280) (11635) 1355
9 OVERHEAD
(1470) (1470) 0
10 NET PROFIT
(11750) (13105) 1355
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 flexed selling price was differ from actual selling price £ 55.00 to £ 48.50 and reduce of
total selling pairs 2000 pairs to 1850 pairs.

 some of the direct material increased in their expenses due to cost increase per pair 3
material have shown equal cost and 1 material price was decreased.
 3mm steel plate material price variance is plus £ 135 and material usage variance minus 330
(390 m2 to 370 )
 Self grip botls material price variance is equal and material usage variance minus 15 (11,250
to 11,100).
 12mm diameter material price variance is equal and material usage variance minus 25
(30,100 to 29,600)
 Non slip buckles material price variance is plus£390 and material usage variance minus 220
(7800 to 7400).
 Steel fabric rivets material price variance is equal and material usage variance is minus
80(46000 to 44400).
 10mm nylon webbing material price variance is plus £360 and material usage variance plus
360(7200 to 7400).

 Direct labour hours has been increased by 92.5 labour hours although the rate was increase
in the rate per hours by £ 0.25.

The purchasing department has to take actions to improve the company from facing anymore
adverse financial performances.
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C)

Reason For The Error

The three reasons for the difference in the actual variable cost and standard
cost per unit. The reason are :

 sales fluctuation

the budgeted output sales of crampon was 2000 pairs but the
actual sales was 1850 pairs due to bad marketing, marketed
in different name Ace crampon and overhead was slightly
increased .it is the major fault .

 price fluctuation
sales price was reduced more from standard cost per pair ,and
direct material cost was different from standard price per
unit,3 materials consumes same value and due to change of
suppliers. the product was not reach the market properly .

 Labour fluctuation

Direct labour price was increased from standard price per unit
and labour hour was reduced due to some changes in
production hour. Need an improvement in working condition,
and need to increase the working hour.
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D) RELATIONSHIP BETWEEN VARIANCE

1. Labour rate and labour efficiency

 These two are having close relationship.

 According to the labour grade salary or wages will be allot for them.
 Grade and salary will differ from one another.
 A position will be given only based on their knowledge or skill.
 Labour routine will create good relationship between labour rate and
efficiency.
 According to the labour performance incentive will be provided.
 if we can maintain the relationship then it will increase the quality And reduces
the production cost.
 a good relationship will achieve a goals.

2. Material price, quality and labour efficiency

 A company should create a deep relationship between labour efficiency and

material. it is necessary for an organization.
 Labour efficiency will increase the material quality and it will reduce the production
cost.
 Material cost and quality is necessary for a revenue for an organization.
 Good quality products will reach market soon.
 Labour efficiency is also one main thing for a success of product.
 In manual and machine this both need a labour efficiency.
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E) DISADVANTAGES OF STANDARD COSTING

 Standard costing report usually prepared only at the month end and the report will
submit only at next day or next week. Some of the organization needs a variance
report daily, so this is a basic problem.

 Standard costing can’t be used in some organization due to non-standard

production. if the production is undertaken customer satisfaction , it will gets
different expenses.

 Setting standard costing is difficult, it needs a tecniqual skill, standard costing study
need more time and money.

 Variance can be divided into two types are controllable and uncontrollable variance.
Standard costing can use only for controllable.

PROBLEMS OF VARIANCE ANALYSIS

 Variance analysis will give the detail where the variance appear it won’t give proper
reason for the variance

 By taking previous year or month variance details an organization can’t make

prediction about their future variance of an organization.

 Observing process is so long in variance analysis it is difficult to control the price

during monitoring.

 Variance analysis take more time ,so we can’t take corrective decisions appropriately
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PART B
BEYOND BUDGETING

Introduction

“ Hope and Fraser through away the 'old' budget and implement the beyond
budgeting (management accounting December 1997)”. Beyond budgeting argues for
which organization free from constraint budget process .it is also releases people from the
conveyed of trusting them with information and time to think, reflect, share, learn and
improve.

Budgeting

Budgeting means planning for the future project for an organization. It is only a
forecasting statement. Budget is the set of procedure set by an organization to achieve a
goal. Budget is use to fix an expenses for the future project of an organization.

Definition of beyond budgeting

“Jeremy hope and robin Fraser (management accounting in December 1997 and
june1999) defines beyond budgeting is one of the main barriers to firms competing more
effectively in the information age is the budgeting system. In this article they report on the
conclusions and next steps of the beyond budgeting round table—a pan-European
research project examining the feasibility of managing without budgets”

Principles of Beyond budgeting

BBRT are a set of twelve principles followed by all bbrt organization. The first six
principles are commenced with taking the right leadership actions, and the second six
align management processes with leadership actions. The contrasts in the table (i.e. The
do’s and don’ts) show the differences in practice between the beyond budgeting and
command and control models.

Leadership actions

 Customer
 Processes
 Personal independence
 Responsibility
 The quality of being clear and transparent
 Governing; exercising authority
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Aligning management processes with leadership actions

 Goals
 Rewards
 Planning
 Controls
 Resources
 Co operation

The principles of beyond budgeting are inter related with one another and it is effective.
Consequently adopting a few principles whilst ignoring the others could well lead to an
unsatisfactory or even a failed implementation.

Beyond budgeting actual focus on organization

1. beyond budgeting was focus to identify the companies that had abandoned the
budgeting model, case reports and presentations.
2. Extracting best practices, implement common principles that form the framework of
what has since become the beyond budgeting model.
3 . Implementation.
For more information regarding beyond budgeting check website at www.bbrt.org and,
guided through a question and answer, it will shows performance of management model
according to the BBRT principles.

Example for beyond budgeting organization

Now a day’s more number of companies operating under the “beyond budgeting”. Some of
the operating companies are:

 Toyota(Japan)
 Nucor steel
 United states southwest airlines
 Aldi
 American foods markets
 Svenska handelsbanken bank
 W.l. Gore
 Nokia
 Guardian industries.

Beyond budgets operating margins and shareholder returns to employee and customer
satisfaction. & it covers an industry, countries and cultures, beyond budgeting models are
remarkable.

Advantages of beyond budgeting

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Faster response
Beyond budgeting operating organizations are speed and they can achieve the
goal.
Innovative strategies
BB operating organizations work within an open and self-managed .bb principles
will be clear trusted and well practiced
Lower costs
There will be a deep relationship between customer and supplier. Then fulfil the
people demand by improving quality and cost.
More loyal customers
Beyond budgeting companies gives customer needs at there situation and
processes to satisfying them.
It will give important to the customer request and necessary.

Conclusion

According to the research of hope and Fraser on beyond budgeting round table,
it argues about the traditional process of budgeting. All organization can’t accept
this concept because

 Small organizations are preceding business by budgeting.

 Using new budgeting systems
 Not aware of the new budgeting system
 New budgeting process is risk

In the modern world every new thing can be accept in a certain period. Like that
beyond budgeting also reaches all the organizations very soon.