Q1.

Direct Material Price Variance = Actual Quantity * (Actual Price - Standard Price)

= 14000 * (.60 - .50) = 1400 (U)

Direct Material Quantity Variance = (Standard Quantity Actual Quantity) Standard Price

((2000*6) - 18000) * .50 = 3000 (U)

Direct Labor Rate Variance = Actual Hours * (Actual Rate - Standard Rate)

= 4000 * (9.75 - 10) = 1000 (F)

Direct Labor Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

= (4000 - (1.8*2000)) * 10 = 4000 (U)

Variable overhead efficiency Variance = Standard overhead rate x (Actual hours - standard
hours)

= 5 * (4000 - 3600) = 2000 (U)

Variable overhead spending Variance = Actual hours worked * (Actual overhead rate -
Standard overhead rate)

= 4000 * (20800/4000 - 5) = 800 (U)

Standard cost are part of a firm's budgetary control management system.Its based on carefully
planned predetermined amounts.Its used for planning the materials and labor needs. It is also used
to evaluate actual performance and control costs.

Standards should not be set by accountants alone. Infact, employees/managers

will usually be more committed to meeting standards if they are allowed to
participate in setting them. Usually a participative approach to standard setting works well.

Advantages:
- If costs remain within the standards, managers can focus on other issues. When costs fall
significantly outside the standards, managers are alerted that there may be problems requiring
attention. This approach helps managers focus on important issues.
-They provide benchmarks that individuals can use to judge their own performance.
-Simplify book keeping (hospitals do this alot)- can just charge the standard rate rather than figure
out someone's procedures

Q2 part 1

Solution - Cost-Volume-Profit (CVP) Analysis

Description - Continuous loss making/budget deficit is the situation where the total Revenue is lower
then total Expenses and thus we are making loss . Generally when a business plan is made it is
made to make Profit with controlled P & L Top to Bottom approach . Sales of Goods are Budgeted to
achieve a particular Revenue and all the expenses are reduced to arrive at the Operating Income .
Now if the Operating income is negative then your Expenses are higher then the revenue and the
reason could be many .

1) Sales Revenue not achieved as expected

2) Cost of Goods sold was more then expected

3) Labour and overheads exceeds the budget reason could be labour inefficiency or Rate varainces

4) Other Administrative cost went high

More or less above reason are the ones which could lead to losses - Now most of the Other
Administrative cost are fixed as to run the business this is vital & on the other hand Rate variances
and inefficiency has to be looked at as we need to always control Rates variances and improve
efficiency to keep the expenses as low as possible to either generate more margin per sale or direct
give the advantage to the customers by reducing the sales price to generate more sales)

Cost of Good sold is the cost of the finished goods which is sold at a particular price by keeping a
profit margin - This is the place again we can save cost by purchasing at the lowest price ( however
adhearing to the quality & Standard) to generate higher margin

And last and the most important is Sales - as the sales grow the absolute margin/profit bound to
improve ( unless you sale in Lower then cost price) so with each sale you move one step towards
Profit making and Cost-Volume-Profit (CVP) Analysis analysis willshow how the operating profit is
changed with change in variable costs, fixed costs, selling price per unit and the volume of sales- we
will take a simple assumption of the following Operating performance where a company sells single
product and is making loss right now- All the Fixed cost ( manufacturing -selling - Administrative )are
taken together and all the variable cost ( material - Labour - Machine- Overhead) are taken together
in one group
 Particulars ($)

n Units 10000

p Sales Price per Unit 7500

A Sales (n X p) 75000000

v Variable Cost per Unit 5000

Variable Expenses (n
B X v) 50000000

Contribution Margin
C ( A- B) 25000000

D Fixed Cost 30000000

Operating income ( C-
E D) -5000000

CVP analysis equation : pn = vn + D + E

Sales Price Per unit X Units Sold = Variable cost per unit X Units Sold + Fixed Cost + Profit

So Profit E = pn-vn-D

Before moving ahead we need to understand the imact of Sales Volume( unit) on profitability - Here
we use the Break Even approach to understand how much Units we need to sale to ensure we do
not go in Losses ie the minimum units to be sold to atleast Break even which can be calculated by
dividing the total fixed cost by difference in Sales price and variable price ie Contribution per unit

= 30000000 / 2500 = 12000 units

Thus at sales of 12000 units or More we will be able to make Profit --------------(a)

and similarly we can calculate how the profit increases with increase unit of sales

Break
Loss 1 Loss 2 Even Profit 1 Profit 2 Profit 3

Particulars ($) ($) ($) ($) ($) ($)

n Units 10000 11000 12000 13000 14000 15000

p Sales Price per Unit 7500 7500 7500 7500 7500 7500

A Sales (n X p) 75000000 82500000 900000 975000 1050000 1125000

 00 00 00 00

Variable Cost per

v Unit 5000 5000 5000 5000 5000 5000

Variable Expenses 600000 650000 7000000 7500000

B (n X v) 50000000 55000000 00 00 0 0

Contribution Margin 300000 325000 3500000 3750000

C ( A- B) 25000000 27500000 00 00 0 0

300000 300000 3000000 3000000

D Fixed Cost 30000000 30000000 00 00 0 0

Operating income 250000

E ( C-D) -5000000 -2500000 0 0 5000000 7500000

Similarly we can analyse the change in profit with change in Sales Price

Break
Loss 1 Loss 2 Even Profit 1 Profit 2 Profit 3

Particulars ($) ($) ($) ($) ($) ($)

n Units 10000 10000 10000 10000 10000 10000

p Sales Price per Unit 7500 7750 8000 8250 8500 8750

800000 825000 850000 875000

A Sales (n X p) 75000000 77500000 00 00 00 00

v Variable Cost per Unit 5000 5000 5000 5000 5000 5000

Variable Expenses (n 500000 500000 500000 500000

B X v) 50000000 50000000 00 00 00 00

Contribution Margin ( 300000 325000 350000 375000

C A- B) 25000000 27500000 00 00 00 00

300000 300000 300000 300000

D Fixed Cost 30000000 30000000 00 00 00 00

Operating income 250000 500000 750000

E ( C-D) -5000000 -2500000 0 0 0 0

Below are the Changes in Profit with Variable Cost change

Break
Loss 1 Loss 2 Even Profit 1 Profit 2 Profit 3
 Particulars ($) ($) ($) ($) ($) ($)

n Units 10000 10000 10000 10000 10000 10000

p Sales Price per Unit 7500 7500 7500 7500 7500 7500

750000 750000 750000 750000

A Sales (n X p) 75000000 75000000 00 00 00 00

v Variable Cost per Unit 5000 4800 4600 4400 4200 4000

Variable Expenses (n 460000 440000 420000 400000

B X v) 50000000 48000000 00 00 00 00

Contribution Margin ( 290000 310000 330000 350000

C A- B) 25000000 27000000 00 00 00 00

300000 300000 300000 300000

D Fixed Cost 30000000 30000000 00 00 00 00

-
Operating income 100000 100000 300000 500000
E ( C-D) -5000000 -3000000 0 0 0 0

And Finally the Changes in Profit with controll in the Fixed Cost

Break
Loss 1 Loss 2 Even Profit 1 Profit 2 Profit 3

Particulars ($) ($) ($) ($) ($) ($)

n Units 10000 10000 10000 10000 10000 10000

p Sales Price per Unit 7500 7500 7500 7500 7500 7500

750000 750000 750000 750000

A Sales (n X p) 75000000 75000000 00 00 00 00

v Variable Cost per Unit 5000 5000 5000 5000 5000 5000

Variable Expenses (n 500000 500000 500000 500000

B X v) 50000000 50000000 00 00 00 00

Contribution Margin ( 250000 250000 250000 250000

C A- B) 25000000 25000000 00 00 00 00

260000 240000 220000 200000

D Fixed Cost 30000000 28000000 00 00 00 00

E Operating income -5000000 -3000000 - 100000 300000 500000

 100000
( C-D) 0 0 0 0

Proposal - With having the analysis done and the What if analysis ready the Proposal will be send to
the Concerned person -

Areas of Improvement

1) Increase Unit Sales = An increase in the Sales volume by 1000 per period is improving the
profitablity by 2.5 Million and thus the Push for Sales is needed to ensure that we break even and
even make Profit . Search & Penitrate into the new Market and performance better in the current
market to ensure the Sales Growth

2) Revisit the Pricing practices and increasing the Sales Price would would give Improved margins .
Though increase in Pricing can reduce the Sales but if ensured that the increased prices are still
competitive then the Sales Loss would be negligiable

3) Controll the Variable Cost =

Variable Cost if controlled by means of Effective Planning and Procurement with imptoved labour
effiency could help the Company make more Margin per sales. Revisiting the Purchase policy and
avoiding wastage can add value to the decrease in the variable Cost . Controll the Overhead
expenses

4) Controll in the Fixed Cost - Though Fixed cost are not proportional to Sales but still if controlled
can reduce the expenses contributing to increased Oerating income . Identify Idle resources and
facilities which are contributing to Fixed assets and rewor to discontinue

With the implementation of the above solution there will be a growth of Operating income and below
is the minimum ideal Performance metrics for the coming period

Loss 1 % Change Profit

Particulars ($) ($)

n Units 10000 3% 10300

p Sales Price per Unit 7500 2% 7650

A Sales (n X p) 75000000 78795000

v Variable Cost per Unit 5000 5% 4750

Variable Expenses (n
B X v) 50000000 48925000
 Contribution Margin
C ( A- B) 25000000 29870000

D Fixed Cost 30000000 2% 29400000

Operating income ( C-
E D) -5000000 470000

Q2 Part 2
Currently strategic management accounting gains special importance for taking managerial decisions in
construction and related industries. The article illustrates the most common accounting methods applied
in Russia and abroad, though special attention is given to combined application of the target costing
concept and conjoint analysis. I scrutinize the logic, possibility and significance of applying the said tools
in construction, sale of economy classresidential property. The research introduces a theoretical model
suggesting the use of the conjoint analysis. This method focuses on the importance of studying a set of
parameters of designed construction products, and analyzing the importance to price ratio per each
parameter. When offering a marketable product with the optimal set of characteristics required by
customers, and when determining the 'usefulness' of a certain factor for customers and searching for
further ways to decrease the cost of one square meter, I reveal certain types of works, which allow
decreasing the construction cost down to the required level. Respective changes in cost items (in
construction documents), which I obtain as a result of the calculations, will enable the management of
construction companies to perform a targeted adjustment of expenses and, therefore, to achieve the
required level of cost.
Objectives The objective is to substantiate the use of strategic management accounting tools by
enterprises involved in development and sale of construction products. The main tasks of the study are to
determine the importance and place of strategic management accounting for construction companies,
evaluate the need of strategic management accounting, show financial feasibility of using the said
methods of strategic management accounting at different stages of construction products' life cycle.
Methods I applied the methods of comparative analysis, systematization, and content analysis to
conduct the study.
Results The presented calculations prove the possibility and efficiency of the practical use of strategic
management accounting tools at different stages of construction products' life cycle. The results of the
study may be useful for a wide range of readers interested in practical implementation of strategic
management accounting tools in the construction industry
Conclusions and Relevance The management based on the methods of strategic management
accounting plays a special role in efficient operations of construction enterprises; therefore, it is a primary
source of their competitive advantages.