Assuming that the budget targets are reasonable, jot down some possible reasons for adverse variances for each of the above occurring.

he variances that we have considered are:

● sales volume

● sales price

● direct materials usage

● direct materials price

● direct labour efficiency

● direct labour rate

● fixed overhead spending.

Assuming that the budget targets are reasonable, jot down some possible reasons for adverse variances for each of the above occurring.

The reasons that we thought of included the following:

Sales volume

● Poor performance by sales staff.

● Deterioration in market conditions between the time that the budget was set and the actual event.

● Lack of goods or services to sell as a result of some production problem.

Sales price

● Poor performance by sales staff.

● Deterioration in market conditions between the time of setting the budget and the actual event.

Direct materials usage

● Poor performance by production department staff, leading to high rates of scrap.

● Substandard materials, leading to high rates of scrap.

● Faulty machinery, causing high rates of scrap.

Direct materials price

● Poor performance by the buying department staff.

● Change in market conditions between the time that the budget was set and the actual event.

Labour efficiency

● Poor supervision.

● A low-skill grade of worker taking longer to do the work than was envisaged for the correct skill grade.

● Low-grade materials, leading to high levels of scrap and wasted labour time.

● Problems with a customer for whom a service is being rendered.

● Problems with machinery, leading to labour time being wasted.

● Dislocation of materials supply, leading to workers being unable to proceed with production.

Labour rate

● Poor performance by the personnel department.

● Using a higher grade of worker than was planned.

● Change in labour market conditions between the time of setting the budget and the actual event.

Fixed overheads

● Poor supervision of overheads.

● General increase in costs of overheads not taken into account in the budget.

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