New Look Jacket Inc.: Variance Analysis Essay

2405 Words Oct 17th, 2014 10 Pages
New Look Jacket Inc

Assignment

12 February 2014

1. Analysis a Business Issue.

Introduction

New Look Jacket Inc. (NLJ) specializes in the production of Nylon Jackets and Leather Jackets. The company delivers successful financial records at the end of the 2012 fiscal year with the net income of $ 417,100, which is $170,850 greater than the net income budgeted for the 2012 fiscal year despite that the company operations goes through some turmoil. A more detail variance shows that the external factor largely responsible for the growth of leather markets that rapidly increase than anticipated making NLJ to catch with the increase in market demand.

Variance Analysis

Contribution Margin

Based on the figure in Exhibit 1,
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Budget Projections

The 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 incur 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.

Reference

Foster, H. & Teall, D. G (2012). Cost Accounting: A Managerial Emphasis, (5th Canadian Edition). Canada, (CMA Online Library).

Appendices

Appendix 1: Budget Projections

Nylon Jacket

Leather Jacket

Total

Sales volume

93,500

30,000

123,500

Sales revenue

$3,272,500

$4,500,000

7,772,500

Direct materials

654,500

1,788,000

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