Investigate a Budget Variance

Question: Discuss about the Investigate a Budget Variance. Answer: Introduction: The application of budget is significant for the business and for the entities. The relevance of budget is not when the money is tight or the business is undergoing change. The budget is for everyone. The budget is mainly used to make short term and the long term projects based on the previous experience in terms of expenses and income. Variances: The budget variance is nothing but the discrepancy of predicted cost and the actual cost. The budget variance may include the shortfall in revenue if the estimations are not property in line with actual figures. The budget variance would include planning for the revenue generation and allocation for emergency contingency account. There can be several reasons attributable to the variance. In case of equipment-reliant business endeavors, especially heavily on machinery, the unexpected maintenance cost would impact significantly to the business. The important part of the variance could be because of increased salary. The unusual increase in maintenance cost would increase actual cost resulting in higher unfavorable variances (Mohr, 2016). The loss of inventory could possibly another reason for unfavorable variance. The natural disaster and other contingencies may severally damage inventories which would have significant impact on the variances. In case of manufacturing company, the abnormal loose caused by mishap or any other reason would increase the variance. The inaccurate budgeting could be another reason for the higher variances. The significant mistakes in prediction would add to the variances significantly (Mueller, 2016). Budget in performance evaluation: There are various tools available to the management to assess the performance of the company based on the financial inputs and other inputs. The future plans are dependent on the sales and the revenue generation to meet fixed expenses. The company has to plan accordingly to deal with the issue of lower sales. The budget is used as the tool of performance assessment. The set of targets are there in the business but it has to be matched with the previous year performance. This is the significant aspect of the business. The performance evaluation is important aspect of the business. The role of the business management includes assessment of customer benefit and sales growth. These two important factors are interlinked to the business. Assessment of the performance based on the inputs received from budgeting and actual figures, better communication channels both inside and outside can be built. The performance evolution in terms of declaring bonus to the employee is important part. Due their good work Ben Hamilton received bonus of $14,633 and Jennifer Boyce received bonus of $23,898 but as Bill Maxwell did not perform according to his expectation level, no bonus was declared or paid to him. The tracking of spending variances can be tracked with help of budget. The tracking budget variances are done monthly basis to pinpoint the issue. The sales generated and the actual expected sales figure works as important performance indicator. The assessment has to be done objectively to assess the root cause of the difference. Modification recommendation: The budgeting and the variances of actual expenses are indicating several things. There are certain parameters created by the company to assess actual materials to be used in production but surprisingly the materials used actually are higher than the budget. The root cause of the increase could be higher material cost ort loss of production. If it is the loss of production, then the vulnerable areas in production has to be carefully looked into. The direct labour cost has also increased significantly. If the labour cost is linked to the production, then the wages rates may have been revised (Vitez, 2016). If the production is based on fixed wages then the labours are not managed efficiently by the supervisions are by the managers. The increase in labour cost and material cost has increased the contribution margin significantly resulting into lower profit margin for the company. There is need to revisits the factors behind such loss of money value and the sinking of margins. The assessment of the future material cost has to be properly done and if required an agreement has to be signed between the company and suppliers so that dramatic increase in the cost does not have negative impact on the margins of the company. On the other hand the wages of the labours has to be linked to the production so that maximum can be derived out of the arrangement (Benge, 2016). Teddy Bear Toy Companys balance scorecard: The balance scorecard is a strategic planning and management system which is exclusively used by the industry to align business activitiesto the vision and the mission. The important role of the balance score card is to monitor organization performance against the strategic goals set by the industry. It is a framework created by Drs. Robert Kaplan and David Norton for non-financial performance measurement (Investopedia, 2016). It is well known fact that 50% of the industry is using BSC for performance measurement and half of the large industries in Europe and Asia and Australia is using BSC. The different perspective of the business is understood and assessed with the help of BSC. The employee training and the adoption of the corporate culture are to increase the repository knowledge of the employees. Here in case of Teddy Bear Toy Company, labour performance has become one of the challenging parts of the business. The increase in the output can help in creating better results for the company. The business process perspective for Teddy Bear Toy Company includes management of raw materials and building strong relations with suppliers and customers. The increase in the raw material prices could be controlled with a proper understanding and agreement (Balancedscorecard, 2016). The strong financials are in the interest of the business and the major changes in the policies would significantly change the policies of the business. Conclusion: The role of the management is significant in development of the business. Teddy Bear Toy Company should use budgeting and BSC as important tools for the assessment of the business as it would reveal the facts of the business and indicate the savings and other factors. Budgeting is used as a tool to forecast the facts and BSC to correct the problems. The important aspect of budgeting and BSC is how the industry would be able to save money for the future and make better arrangement in the long term (Olsen, 2008). References: Balancedscorecard. (2016). Balanced Scorecard Basics. Retrieved 09 21, 2016, from balancedscorecard.org: https://balancedscorecard.org/Resources/About-the-Balanced-Scorecard Benge, V. A. (2016). Budgets as a Basis for Evaluating Performance. Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/budgets-basis-evaluating-performance-82027.html Investopedia. (2016). Balanced Scorecard. Retrieved 09 21, 2016, from www.investopedia.com: https://www.investopedia.com/terms/b/balancedscorecard.asp Mohr, A. (2016). Reasons to Investigate a Budget Variance. Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/reasons-investigate-budget-variance-47924.html Mueller, D. R. (2016). What Are Some Examples of Budget Variances? Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/examples-budget-variances-24973.html Olsen, D. H. (2008). Performance Management and the Balanced Scorecard. Retrieved 09 21, 2016, from onstrategyhq.com: https://onstrategyhq.com/resources/performance-management-and-the-balanced-scorecard/ Vitez, O. (2016). What Is the Role of Budgets Performance Reports? Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/role-budgets-performance-reports-861.html.