Assessment Task

Drawing on your  understanding  of  the  fundamentals  of financial  management,  as  well  as  costs, budgets and management control, write a 1,000-word scenario analysis report identifying, measuring and analysing the budget variances of a fictitious company.  More detailed information about this fictitious company can be found in the Assessments area of the subject site. This assessment is a practical task involving the application of budgeting skills, comparison of actual performance with the budget and analysis of the observed variances. The aim of this assessment task is to consolidate your knowledge and skills relating to the financial management of business operations.

Context

Budget variances refer to the differences between the actual financial results of a company and the budgeted or planned financial results for a specific period. These variances can be either favourable or unfavourable, depending on whether the actual results are better or worse than what was planned. Understanding and analysing budget variances is important for companies because it allows them to identify areas of their business that may be underperforming or overperforming. By comparing actual results to  planned  results,  businesses can identify where they  need to  make changes  in order to improve profitability, reduce costs or increase revenue. Performing variance analysis is one of the many activities that a management accountant performs when providing financial and non-financial information to aid effective decision-making in an organisation.

This  assessment  task  will  focus  on  three  types  of  variances:  direct  materials,  direct  labour  and overhead  variances.  Interpreting  these  variances  successfully  requires  you  to  both  analyse  and evaluate. This includes breaking down each variance into its components as follows.

The formulas for the variances above are found in the Costs, Budgets and Management Control module, under the Variance Analysis topic.

Instructions

In this assessment task, you will take the role of the management accountant of the company and analyse variances  based  on  a  comparison  of  the  actual  performance  of  the  business  operations relative to its budgeted performance. To be successful in this assessment task, you are required to follow the steps below.

1)    Read and understand the topics covered in the modules:

• Introduction to Financial Management

• Costs, Budgets and Management Control

2)   Analyse the additional information in the Assessment 1 Variance Analysis Template (MS Excel file), which is provided in the Assessments area of the subject site. The template contains the following sheets:

• Background  Information –  includes  details  about  the  fictitious  company  and  further instructions about how to use the sheets in the template.

• Data – includes information on standard budget and actual performance.

• Template –  contains  empty  cells  in  which  you  are  to  insert  the  correct  formula  and calculate the required item.

• Variance Report  Format – outlines the information required in the variance  report that you are required to submit to support your scenario analysis report.

3)   Write  a  scenario  analysis  report  supported  by  a  variance  report,  based  on  the  data  and operational details of a fictitious company provided in Step 2. Your variance report should follow the format provided in the Assessment 1 Variance Analysis Template (MS Excel file).

4)    Using the information from the business operations, budget and the actual production and costs data, you are required to identify, measure and analyse the following variances and investigate their sources:

• Direct material variances

• Direct labour variances

• Overhead variances

5)    In your scenario analysis report, you are required to:

•   summarise and present your variance analyses

•   evaluate  your  variance  calculations  in  Steps  2–4,  discuss  the  potential  causes  for  the variances and provide any remedial measures that can be taken to minimise the variances

•   recommend to the client what position to take in relation to each of the three (3) variances determined, based on your evaluation of the variance calculations.

Scenario Analysis Report Structure and Format

Your 1,000-word scenario analysis report should follow industry standards and be structured as shown in detail below:

Executive Summary – In this section (100–150 words), you are required to summarise your entire report. As a minimum, you will need to discuss the purpose of your report, the methodology you have used, the key findings and your recommendations. The executive summary is not included in the word count.

Table of Contents – This section is not included in the word count.

1.    Background (around 150 words) – Provide a description of the task, the tools and methods that will be applied, and how the report is organised.

2. Standard budget (around 50 words, in addition to the tabulation) – Using information on the production design and process, as provided within the Assessments area of the subject site,   tabulate a standard budget for the specified production volumes.

3.    Comparison of the actuals with the budget (around 50 words, in addition to the tabulation) – Calculate and tabulate the variances, while distinguishing the variances into material, labour and overhead variances, and their sources.

4. Analysis of Variances (around 400 words) – Discuss the potential reasons for the variances, their significance and possible ways to resolve the more critical variances.

5.    Recommendations  and  Overall  Assessment (around  350  words)  –  Use  the  variances  of  the company, as revealed by the analysis you have undertaken, to recommend what position the client should take in relation to each of the three (3) variances listed in Step 4 in the Instructions section.

6.    References - A minimum of six (6) academic and related references (e.g. journal articles, book chapters, conference  papers)  and  at  least  two  (2)  non-academic  and  related  references  (e.g. company websites  and  annual  reports,  newspaper  articles,  government  websites,  consultant reports, etc.) are required to support the discussions in your scenario analysis report. Please make sure  your  references  are  current.  All  references  should  be  in  the  current  APA  style.  Using Wikipedia, Investopedia and similar sources should be avoided. This section is not included in the word count.

Read the assessment rubric, which is an evaluation guide with the criteria for grading your assessment. This explains what features a successful scenario analysis report should exhibit.

Referencing

It is essential that you use current APA style. for citing and referencing the sources that you use.

Please see more information on citing and referencing guidelines on the Academic Success webpage.

Assessment Support

For a range of additional resources and support to help you complete your assessment, please consult the Study Support page on the Student Hub.