New Look Jacket Inc.: Variance Analysis Essay

forward-looking Look poll Inc. (NLJ) specializes in the production of Nylon Jackets and trounce Jackets. The union delivers successful pecuniary indicates at the completion of the 2012 pecuniary year with the lucre income of $ 417,100, which is $170,850 greater than the net income calculateed for the 2012 fiscal year contempt that the follow operations goes through almost turmoil. A more detail partitioning shows that the external factor largely responsible for the growth of welt markets that rapidly append than anticipated devising NLJ to catch with the emergence in market inquire.Variance digestContribution MarginBased on the figure in Exhibit 1, the number amount of contribution all(a)owance for the Nylon ceilings is $4,350 little than the figure. Although, the substantial unit of contribution margin is $0.15 greater than the standard repayable to the inflict admin follow and selling per unit. However, the slash jackets agree contribution margin is $325,200 higher than the budget. The veridical unit for contribution margin is $12.70 little than the standard because of the higher variables in all the business categories.Sale VariancesAnalysis of barter disagreement reveals that New Look Jackets record 110,000 effective cut-rate bargain chromas greater that barter chroma of 100,000 budgeted for the fiscalyear. The fortunate sport of 10,000 incurs the come with to record the join on in the bargains imposeation for the actual budget. The beau monde recorded $5,747,500 as actual revenue comp bed to $4,075,000 budgeted as barter revenue qualification the play along to record the favorable magnetic declination of $1,672,500 in revenue. notwithstanding the favorable sale magnetic variation that the federation records, it is only the slash Jacket that records favorable partitioning because the budgeted sale volume is 5,000 units and the actual sale volume is 16,500 units making the company to record a favorab le variance of 11,500 in the sale volume. However, the variance for the sales of Nylon jacket is negative with the budget of 95,000 units for the sale volume and the actual budget recorded are 93,500 units making the company to record the unfavorable variance of 1,700 units in sales.Thus, the sales mix variance is favorable for the whip jackets, however, unfavorable for the Nylon jacket. The company recorded unexpectedly high in the market of welt Jacket in 2012 generating favorable mix market for the company.The head up material footing is not favorable for the New Look Leather jackets demo that the company spends more in get of charge materials than the price actually budgeted for Leather jackets. The major reason is that the company did not have enough material in stock to produce the quantity of leather jacket dealed. Due to the abnormal subjoin in demand for the Leather jacket, the company had to make a rush fix up for the Leather jacket material which then led to t he growth in the price of direct materials.2. Budget projections for Sales, straight off material, Direct projection, Variable costs and Fixed Cost.The newspaper haves a new budget for the New Look Jacket based on the on the company past financial performances and the economic outlook for the 2012 fiscal year. The results of the variance analysis between the 2012 budget and the actual budget at the end 2012 fiscal year is also used to rearthe new budget.AssumptionsThe paper prepares the new budget based on the following assumptionsThe growing in inflation go forth not be more than 5% and development in inflation is take for granted to extend to the projected fixed costs of operations. The sale volume of Leather jacket is sour to reach 30,000 units. Essentially, the company did not prepare for the append in the demand for the Leather jacket in the preceding year, and it is assumed a new trend in fashion allowing affect the demand for the Leather jackets, which will lea d to an increase in the demand for the Leather jackets. The former(a) assumption is that the US economy will not experience a inlet that may affect the total demand. Moreover, the income tax will remain the same because the increase in income tax is likely to extraction the total demand.Budget ProjectionsThe data in the new budget reveals that the company will realize the total sales volume of 123,500 units in both the Nylon Jacket and Leather jacket. However, it is projected that the demand for the Leather jacket will reach 30,000 units making the company to record the revenue of $4.5 Million in the Leather jacket. The increase in the demand for the Leather jacket will make the company to realize the revenue of more than $7.77 Million. (See Appendix 1 reveals the new budget and Appendix 2 reveals the costs of direct materials and direct labor).Despite the increase in the company total revenue, the company will incur an increase in the cost of direct material and direct labor due to a projected increase in the total demand for the Leather jacket. Moreover, the total fixed costs are projected to increase to $1.5 Million due to 5% increase in inflation. Despite the increase in the total costs, the company is projected to record a net income of $518,419.ReferenceFoster, H. & Teall, D. G (2012). Cost history A Managerial Emphasis, (5th Canadian Edition). Canada, (CMA Online Library).