Variance Analysis on New Look Jackets
Subject: New Look Jackets Variance Analyses and Draft Operating Budget
The following report explains the significance and reasons for the variances in New Look Jacket's 2012 detailed variance report and provides a draft operating budget for 2013.
Analysis of Variances
The sales price variance is zero, meaning the average price New Look Jackets sold products was the same as the budgeted sales price.
The sales mix variance is unfavourable for Nylon Jackets and favourable for Leather Jackets as the demand for leather jackets were unexpectedly high in 2012 and as a result, New Look Jacket sold more leather jackets than budgeted, generating a favourable sales mix …show more content…
The variable selling and admin costs variance was favourable for nylon jackets indicating NLJ spent less in variable selling and admin costs for nylon jackets than expected.
The fixed overhead and fixed selling and admin variances were unfavourable for NLJ indicating NLJ spent more on fixed overhead and fixed selling and admin expenses than budgeted. This was likely due to opening the factory for longer hours and incurring additional administrative and selling costs to administer and sell the higher than budgeted amount of leather jackets.
The total variance for NLJ is favourable indicating NLJ made more profits than budgeted overall. This resulted from the increase in demand for leather jackets.
Draft Operating Budget 2013
With sales and production estimates, New Look Jackets is expected to gain more revenues, especially from leather jackets, and incur the same percentage of variance costs as 2012 at 70%, and a 5% increase in fixed costs. Overall profit is expected to more than triple 2012’s profits (see Appendix A).
New Look Jackets is in a fortunate position of facing a thriving industry with high growth expectations for the demand of leather jackets. If NLJ can improve its operating efficiency in producing large quantities for leather jackets by purchasing higher quality direct materials, using more