The business can do cost reduction through the variance analysis. This can help immensely using the under given methods dealt below.
(a) Material variance arise due to the change in the basic price. In such case ,the departmental head should take the necessary action to purchase at the right point of time.
(b) Material usage variance arise due to the poor quality of the input raw material, ineffective use of material, pilferage and non standardized mix. The possible solution is regular inspection of the quality materials, proper training of the operators and ensuring the optimum utilization of the resources.
(c) Labour efficiency variance arise due to the change in design and quality standard, poor working conditions and improper scheduling. The cure of these problems can be proper planning , proper training, healthy work environment and timeline for achieving set targets.
(d) Labour rate variance is caused by the improper placement of labour including overtime. The suggestive course of action is that the time scheduling for work performance must change. Also there must be proper job allocation according to the capabilities of workers.
(e) In case of manufacturing overhead , there can be an improper planning, sales reduction, breakdown which can be solved through efficient planning for better capacity utilization. There can also be a check on the inappropriate expenditure.
(f) There can be improper selling and distribution variances due to increase in delivery cost and overtime. We can improve variances positively by increasing sales quota and targets.
(g) Variances due to the administrative overhead arise due to over expenditure. It can be checked by comparison of budgeted cost and the actual cost.
Every business must work on the above variances to tide out of crisis and improve the business conditions in a positive manner because the savings of cost is also a form of revenue generation.
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