# Wilmont Chemicals Corporation Harvard Case Solution & Analysis

Calculation Shown in Exhibit 3.

Variance Analysis:

Variance analysis performs to calculate the reason for deviation in income and expenses incurred over a specified period from the projected budget. Variance analysis is better to compare with the flexible budget in the calculation of variance from actual performance. Sales volume variance is the difference between projected profit and actual profit while preparing the flexible budget. All other variances that are material variance, labor variance, and other manufacturing and non-manufacturing variances are calculated as the difference between the actual performance of the company and its flexible budget.

Flexible budget is prepared to calculate variance as apple to apple comparison, so that we can compare the actual revenue with the standard revenue that is earned for the actual level of sales volume, in the same way actual expenses incurred during a period is compared with the estimated expenditure that are incurred for the actual level of production.

Variance analysis is very essential for any organization to evaluate the performance of the organization overall and on an individual basis. Variance analysis identifies the deviations of actual results from the set standards of the organization which are affecting the financial performance.

Calculation shown in Exhibit 4

Variance analysis of Wilmont Chemicals Corporations shows the company actual performance with their projected standards.

Material price variance shows unfavorable result of \$24,000/- which indicates that the standard price set of material is inefficient as the standard price is below the actual price of the material. This variance may be arising due to certain circumstances which may be either an overall increase in the market price of the material, high quality material other than which will set in projected material or it may be due to the deficiency of the procurement department.

Material quantity variance results in an unfavorable amount of \$30,000/- which shows that set for material is inefficient as the standard price is below the actual price of the material. This adverse variance may be more due to the lower quality purchase of more material than standard set or maybe this is due to inefficiency of labor and/or wastage of material.

Labor rate variance shows a favorable amount of \$561/-. Labor favorable variance arises due to decrease in the wage rates of the labor or it may be due to hiring of unskilled labor at a low wage rate.

Labor efficiency variance shows an adverse amount of \$1,320/-. Adverse Labor occurs due to inefficient labor as it is set in standard, it may be due to stoppage of work by labor due to strike or unstable political conditions in the work environment.

Sales price variance shows an unfavorable amount of \$10,000/-. Adverse sales price variance may be due to competition in the market, it may be due to decrease in demand of a company's product or may be due to any other law enforced to reduce the price of product, in any of the above situation company would have to reduce its per unit sale price to remain competitive in the market which results in adverse variance for the Wilmont Chemicals Corporation.

Sales volume variance shows an adverse amount of \$10,000/-. An unfavorable sales volume variance may be due to less number of units sold as they are set in budgeted....................................

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