Budgeting and Performance Evaluation

Question: Discuss about the Budgeting and Performance Evaluation. Answer: Introduction Explanation regarding the presence of variances present in the company according to Part A has been presented in the report. The reason behind the variances and the steps that should be followed has been analysed in this part. The tools and methodology that can be used for prevention of variances have also been included in the report. Analysis of variance present in Teddy Bear Toy Company: Deviation in actual performance from expected or estimated the performance of an organisation in accordance with standards of the budget can be said as variance, the analysis of the same is variance analysis (Crawford, 2014). The reasons behind the difference between the budgeted expenses and income according to the standards and the actual figures are analysed through variance analysis. The company consists the above three variances. Sales volume variance is evaluated to measure the impact of the change in actual and budgeted sales quantity on the contribution or profit of the organisation. As in the present study, according to the available data, the budgeted units of sales are less than actual units and the same is the reason behind the existence of sales volume variance (DRURY, 2013). The contribution has also been affected due to the same reason. The second variance which is present is sales mix variance; the reason behind it is the proportion mix of product is not in accordance with the standards of the organisation. The proportion in the present case of retail and the wholesale department is deviating from the estimated figures due to which the sales mix variance has been observed by the management. Another variance which has been observed is flexible budget variance (Hobbs, 2012). It is a form of income statement which is prepared according to the level of ac tivity and the change in the particulars of it affect positively or negatively the profit of the organisation. The variable and fixed overheads of Teddy Bear Toy Company are not in accordance with the budgeted figures, and the same has affected the contribution to $ 155,44,820.00 The formulas relevant to above variances: Sales Volume Variance In the case of absorption costing: (Actual Unit Sold- Budgeted Units) X Standard Profit per unit. In the case of marginal costing: (Actual unit of sales- Budgeted Units of Sales) X Standard Unit of Contribution /unit (Hofstede and et.al., 2012). Sales Mix Variance In the case of standard costing: (Actual Unit Sold- Sales according to the standard mix) X Standard profit/unit. In the case of marginal costing: (Actual unit sold- Sale according to standard Mix) X Standard Contribution /unit (Horngren, 2009). Flexible Budget Variance (Actual amount of overhead) - (Estimated amount of overhead) Analysis of incentive plan of the company Incentive Plan can be said as a tool used by the management or the higher authorities for encouraging excellence performance and to observe the quality of work of employees. It is an additional amount paid to the employee in addition to their regular salary which can be cash as well as non-cash (in the form of gift or in-kind). The main advantage of incentive plan is then the employees get motivated at a large scale because they are going to receive an extra benefit or reward for the accomplishment of achieved goal. The advantage is availed on the basis of the increase in the level of productivity (Kaplan and Anderson, 2013.). It creates an environment of harmony as the level of productivity cannot be increased by one person and for achieving the goal work is done together by all the workers. Ease is provided in achieving the desired goal (Keyes, 2016). The disadvantage that a business man has to bear from incentive plan is, a lump sum bonus is an effective monitor which is based on a predetermined deadline which can make an employee resentful in case an another employee gets a bonus of higher amount than him (Shank and Churchill, 2010). If the bonus is given in non-cash form than possibility might be there that employees of the organisation are not interested in it. As a result, they might not perform according to the capability they are having (Marshall and et.al. 2011). The company is giving additional discount according to the alternative source chosen for purchasing the product. It should allow a discount on the basis of the amount of order rather than the source. The organisation can also develop a policy regarding giving reward in the form of non-cash incentive to the employees and can conduct a survey for recognising the choice of the reward of workers or should give one or two option regarding reward. Balanced Scorecard A system for measuring the performance which evaluated and represented the performance of particular strategic area of each department can be said Balanced Scorecard (Norreklit, 2010.). It includes evaluation of the cost of product and time-based measurement of the activity of the new product. The following measures are being suggested to Teddy Bear Toy Company: The objective of customer satisfaction should be accomplished by the management by providing the demanded product on time and without unusual failure. The improvisation should be done in internal procedures of the company to enhance the value of customer and shareholder. The four perspective of balanced scorecard i.e. internal business process, learning growth, customer and financial should be considered in an appropriate manner for achieving the predetermined objective. Recommendations Analysis of variances present in the Teddy Bear Toy Company is presented in the report. According to the analysis, it could be suggested that management can prevent variances with the application of incentive measures. Focus should be given on the capabilities of the entity so that the objective of increasing customer and shareholder value can be attained in an appropriate manner. The management can also use effective use of balanced scorecard for improving the quality of workers in order to achieve a higher level of quality. References Crawford, J.K., 2014. Project management maturity model. CRC Press. DRURY, C.M., 2013. Management and cost accounting. Springer. Hobbs, J.B., 2012. Volume-mix-price/Cost budget variance analysis: A proper approach. 39(4). Pp.905-913. Hofstede, G.H. ed., 2012. The game of budget control. Routledge. Horngren, C.T. 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India. Kaplan, R. and Anderson, S.R. 2013. Time-driven activity-based costing: a simpler and more powerful path to higher profits. Harvard business press. Keyes, J. 2016. Implementing the IT balanced scorecard: Aligning IT with corporate strategy. CRC Press. Marshall, D.H. et.al. 2011. Cost Accounting. McGraw-Hill Irwin, Norreklit, H., 2010. The balance on the balanced scorecard a critical analysis of some of its assumptions. Management accounting research, 11(1). Pp.65-88. Shank, J.K. and Churchill, N.C., 2010. Variance analysis: A management-oriented approach. Pp.950-957.