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” Changes in the production process causing increased loss of materials.”
– Could you explain how the sentence below leads to an adverse planning variance?
“Changes in the production process”, how can that be a planning variance? The production process is in the control the manager, thus if the changes it, then it is his fault.Please locate where I am getting things wrong.
Thanks.
Changing the way they produce means they have changed their plans and therefore they will not expect the original budget figures to apply. The difference is a planning variance.
If it is adverse then the fault is that of whoever made the decision to change the plans, which may well be the production manager. But it is still a planning variance.
I am a bit confused here.
How can we link ‘Changes in the production process’ with ‘uncontrollable factors’?
How can that be an uncontrollable factor for the manager responsible?Once they have made the decision to change the production process, it is no longer controllable – they are not going to change their plans every day 🙂
Maybe they prepared the budget assuming they were going to make the product by hand. Since then, maybe they decided to change their plans completely and produce by machine. The difference between the costs is due to a change of plans – so a planning variance. Operational variances are then calculated by comparing the actual costs with the revised standard costs.
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