Performance Management Budget Control Management

Question: Describe about the Performance Management for Budget Control Management. Answer: Introduction Present report includes analysis of Teddy Bear Ltd by considering its cost performance over the years. For this aspect variance analysis will be done by considering computed variances in part one. In this part, reasons will be identified for its occurrence. In second part Incentive plan will be prepared on the basis of its advantages and disadvantaged. For the implementation of this incentive plan, tool of balance score card will be used. Analysis Variance analysis Variance Analysis refers to the analysis of deviation in financial performance (actual figures) from the organisation budgets according to the standards. It includes isolation of different causes of deviation in actual expenditure and revenue from the budgeted standards. The objective of variance is to identify the amount of increase in direct wages belong to increase in wage rate, a decrease in productivity of the workforce, unanticipated idle time and to extra wages paid due to higher production than the budgeting (Bowersox and et.al.2013). The variance relevant to the Teddy Bear Toy Company have been explained with their formula: Sales Volume Variance: It is a measure of change in contribution or profit due to change in actual and budgeted sales quantity. It evaluates the effect of a change in the level of sales on contribution or profit over a fixed period (Kaplan and Atkinson, 2015). In the present case as the actual sales unit are more than budgeted units which are the reason behind the existence of sales volume variance and due to the same reason contribution is also affected. Formula: 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 per unit. Sale Mix Variance: Change in profit or contribution due to deviation in the proportion of different product from the standard mix can be said as Sales Mix Variance ( Kerzner, 2013) . The change in mix i.e. according to budget sales related to the retail department were 1, 35, 59,407 but the same is 85, 73,285 according to the flexible budget mix, the same kind of change has been analysed in wholesale department. Formula: If standard costing is used: (Actual Unit Sold- Sale according to the standard mix) X Standard profit per unit. If marginal costing is used: (Actual unit sold- Sale according to standard Mix) X Standard Contribution per unit. Flexible Budget Variance: the Flexible budget is a system in the form of income statement which can be adjusted to any level of activity. In this case, the fixed, as well as the variable overhead, are different from the budgeted figures which negatively affected the contribution to $ 15544820. Formula= (Actual amount of overhead) - (Budgeted amount of overhead) Incentive plan Incentive Plans is a technique used by the owner or the higher authorities to encourage, reward exceptional performance and recognise their employees. It usually surpasses the salary and benefits agreement which are given in the form of cash bonus, gift items of non-monetary value (Hofstede, 2012). Advantages: Incentive plans motivate the employees as an extra benefit is availed by the employee in case of achieving a predetermined goal. The advantage available to the employee is that employer increases the level of productivity. Almost all the incentives are tied to earnings, thus with the increase in revenue, an increase in a number of wages also incurred. Therefore the organisation is able to overview the bottom lines in direct proportion to sales generated by the employees (DRURY, 2013.). Disadvantages: From the viewpoint of a businessman a lump sum bonus can be an effective motivator but as the bonus are based on achieving a predetermined deadline, but the same could make an employee resentful, in case the other employee gets a higher bonus. It leads to jealousy and decreases in the morale of employee which negatively affect the quality production of an organisation (Alex Saez, The Disadvantages of Incentive Plans, 2012). As non-cash incentives are provided in some entities, i.e. providing products or services they deal with. This kind of incentive can motivate only in case the employee is having an interest in the no cash reward. If the employee is not interested in the incentive, no extra hard work will be done to achieve it (Crawford, 2014). Hence, it would be more appropriate if the organisations provide some choice of reward, or hire the employees who are interested in the products or services provided by you. In the present case, the incentive is based on the criteria of the place of ordering i.e. if the product is ordered from the internet an additional discount can be availed by the customer. The company should allow an additional discount on the basis of the amount of order rather than the medium through which order is placed. The incentive should be based on the amount of which the customer is purchasing product i.e. higher incentive for a higher amount of purchase. In incentive scheme for employees, currently company is providing bonus to the managers on the basis of their performance like Ben Hamilton received a bonus of $14,633, Jennifer Boyce received a bonus of $23898 and Bill Maxwell did not receive a bonus due to non-satisfactory performance. This approach is viable as it will motivate managers to improve performance to reduce adverse variance. Further, consideration of balance scorecard factors will improve the criteria for evaluation of performance. Balance scorecard Balanced Scorecard can be said for a performance measurement system which evaluates and presents a report on a performance measure of each strategic area of the department. It includes measurement of cost and product, shareholder value measure and cash flow measures too (Kim Langfield-Smith, 2010). From the point of view of customer an information regarding the success of the company in achieving customer value by providing information through lead indicators regarding on-time delivery and number of defects. The following performance measures can be included in Teddy Bear Toy Company: As balanced scorecard assists in measuring the cost, time-based measurement and new product development of an entity, the company should make available relevant information so that the following factors could be measured. This report recommends that a long-term growth and improvement should be provided by the department to increase the profitability of the organisation. All the four perspectives of balanced scorecard i.e. financial, customer, internal business process and learning and growth should be made available in the balanced scorecard according to this report. Recommendations The main focus should be given to customer satisfaction which can be attained through regular feedback and on-time delivery of the appropriate product. The main objective of the organisation by applying these measures should be to focus on capabilities of the organisation to attain enhance internal process through which value of customer and shareholder can be increased (Langfield-Smith, Throne, Smith and Hilton.2012). With the application of these measures, the above-mentioned variances can also be eliminated. References Books Journal Bowersox, D.J. and et.al. 2013. Materials logistics management. International Journal of Physical Distribution Logistics Management. Crawford, J.K., 2014. Project management maturity model. CRC Press. DRURY, C.M., 2013. Management and cost accounting. Springer. Hofstede, G.H. ed., 2012. The game of budget control. Routledge. Kaplan, R.S. and Atkinson, A.A. 2015. Advanced management accounting. PHI Learning. Kerzner, H.R., 2013. Project management: a systems approach to planning, scheduling, and controlling. John Wiley Sons. Kim Langfield-Smith and et.al. 2010. Managing the Outsourcing Relationship. UNSW Press. Langfield, S., and Hilton.2012. Accounting and Financial Management. Routledge. Online Direct Material Yield Variance. 2010. [Online]. Available through https://accounting-simplified.com/management/variance-analysis/material/yield.t. [Accessed on 25th September 2016] Saez, A., and Studio, D., 2012. The Disadvantages of Incentive Plans. [Online]. Available through https://smallbusiness.chron.com/disadvantages-incentive-plans-56703.. [Accessed on 25th September 2016]