New Look Jacket Inc.: Variance Analysis Essay

New Look treetop Inc. (NLJ) specializes in the production of Nylon Jackets and lash Jackets. The partnership delivers successful financial records at the end of the 2012 fiscal year with the shekels income of $ 417,100, which is $170,850 greater than the exculpate income budgeted for the 2012 fiscal year despite that the keep fellowship trading operations goes through some turmoil. A more(prenominal) detail sectionalisation shows that the away factor largely responsible for the growth of slash grocerys that rapidly outgrowth than anticipated making NLJ to catch with the growth in market take up. variant AnalysisContribution MarginBased on the figure in Exhibit 1, the jibe amount of contribution margin for the Nylon capitals is $4,350 less than the budget. Although, the unquestionable unit of contribution margin is $0.15 greater than the standard due to the overthrow admin cost and selling per unit. However, the whip jackets total contribution margin is $325,200 high than the budget. The essential unit for contribution margin is $12.70 less than the standard because of the higher(prenominal) variables in all the business categories.Sale VariancesAnalysis of change section reveals that New Look Jackets record 110,000 actual sales event volumes greater that sale volume of 100,000 budgeted for the fiscalyear. The favorable fluctuation of 10,000 reserves the company to record the annex in the sales revenue for the actual budget. The company recorded $5,747,500 as actual revenue compared to $4,075,000 budgeted as sale revenue making the company to record the favorable variance of $1,672,500 in revenue. disdain the favorable sale variance that the company records, it is only the lash Jacket that records favorable variance because the budgeted sale volume is 5,000 units and the actual sale volume is 16,500 units making the company to record a favorable variance of 11,500 in the sale volume. However, the variance for the sales of Nylon jack et is reproving 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 leather 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 immediately material impairment is not favorable for the New Look Leather jackets showing that the company spends more in purchasing of deal materials than the price actually budgeted for Leather jackets. The major reason is that the company did not beat enough material in stock to produce the quantity of leather jacket chooseed. Due to the abnormal affix in demand for the Leather jacket, the company had to make a rush order for the Leather jacket material which consequently led to the increase in the price of direct materials.2. Budget projections fo r Sales, Direct material, Direct childbed, Variable costs and Fixed Cost.The written report rises a naked as a jaybird budget for the New Look Jacket ground on the on the company past financial performances and the economic mind-set 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 preparethe forward-looking budget.AssumptionsThe paper prepares the new budget based on the side by side(p) assumptionsThe increase in inflation allow not be more than 5% and increase in inflation is pretended to affect the intercommunicate fixed costs of operations. The sale volume of Leather jacket is assumed to kitchen range 30,000 units. Essentially, the company did not prepare for the increase in the demand for the Leather jacket in the preceding year, and it is assumed a new trend in fashion will affect the demand for the Leather jackets, which will lead to an increase in the demand for the Leather jackets. The opposite assumption is that the US economy will not experience a recession that may affect the total demand. Moreover, the income tax will proceed the same because the increase in income tax is likely to decline 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 take in 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 Accounting A Managerial Emphasis, (5th Canadian Edition). Canada, (CMA Online Library).