Essay on Luotang Power

3233 Words Mar 22nd, 2013 13 Pages
Table of Contents

INTRODUCTION 1 QUANTITATIVE VARIANCE ANALYSIS 2 i.Quantity Variance 5 ii.Price Variance 6 iii.Fuel Efficiency Variance 7 iv.Fuel Cost Variance 8 v.Other Cost Variances 9
5 PORTER FORCES……………………………………………………………………….......11 CONCLUSION 12

INTRODUCTION

Luotang Power was established by American companies who was selected bidders to operate a 600 MW coal-fired power plant project. This company was located in Hubei Province, China. Although this company wholly foreign-owned but they need to use Chinese- manufactured equipment. There are two main issues in this case study. The first issue is the positive performance of Luotang Power does not show in the financial results. Mr. Tan Min Yi was scheduled
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Quantity Variance
(3,427,351-3,937,377) x 0.4219 = RM 215,179.97 (UNFAVOURABLE)
Based on the calculation above, we can see that amount of selling to HPPC had been declined in the year 2011 regarding HPPC produce electricity by itself. As we can see, Luotang Company never expects that demanding from HPPC will decline because looking at data, they make a bulk purchase on year 2010 and suddenly on year 2011, have dropped in demand. Ratio of coal consumed to net electricity generation | 2010 | 2011 | 347,000 X 100 % = 8.81 % 3,937,377 | 346,000 X 100 % = 10.09 % 3,427,351 | Based on calculation above, we can see that in the year 2010, Luotang very effectively usage their resources accordingly to generate electricity, but in the year 2011, Luotang lack of usage of resources to generate electricity. |

Excessive usage of materials that is usually a reason of unfavorable direct material quantity variance may be due to lower quality of materials, untrained workers, poor supervision. Generally, production managers are responsible for this variance. However purchasing department may also be held responsible for purchasing

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