Rana Habib Rahman
Alex Kamotho
EDBUS 2E
In this assignment I will evaluate the implications of budget variances for Sun PLC. I will also define
what budget and budgetary control is and then I will compare the results.
Budgets
Budgets are an estimation of the revenue and expenses over a specified future period of time. A
budget can be made for a person, family, group of people, business, government, country,
multinational organization or just about anything else that makes and spends money.
Budgetary Control
Budgetary Control refers to how well a business or an individual has utilized budgets to monitor,
control costs and operations in a given accounting period. In simple words it is the process to set
financial and performance goals with budgets that has to be compared with actual results and adjust to
improve efficiency for the business if needed.
Reason
There are many reason for business to set up budgets, mainly it is done so that they can improve the
performance of the business including financially. Budgets are done by businesses so that the
budgeted results can be compared with their actual results. For instant if Sun PLC had budgeted to
spend £500 on raw materials and ended up spending £600, which is more than they had budgeted
therefore it means that the variance analysis is adverse. Sun PLC can then learn from their mistake by
identifying where they spent more, which product they spent more on and is the product still popular
or not. This way they can save money and be with in their limited budgeted and the savings can help
Sun PLC to invest somewhere else where it can be productive.
Sales Variances
Variance Formula Calculation
Sales Price Variance Actual Price - Standard Price 2.80 – 3 x 190,000
x Actual Sales = 38,000 (A)
Sales Volume Variance Actual Sales - Standard Sales 190,000 – 180,000 x 3
x Standard Price = 0 (F)
For sales price variance, Sun PLC budgeted to sell their cooking oil at £3/bottle and was expecting to
sell 180,000 of them in one calendar year. Unfortunately they had to reduce the price to £2.80/bottle
but they sold 10,000 extra bottles that exceeded their estimate to 190,000 bottles. The business did
adverse as they were short of their budget by £8,000. This could be due to high competition and to
remain competitive they had to reduce the price of their bottles by 20p in order to gain and attract
more customers, which they were successful at. Another reason could be that they produced more
bottles then they needed and in order for them to get rid of the extra bottles they sold it at cheaper
price so that they don’t face storage issues in future too. This can be supported by the figures as Sun
PLC has paid more for material and labour cost. For instance, Sun PLC’s actual cost for employees
(labour) was £6.40 which was 20p more per employee, the raise could’ve been done in order to
motivate the employees and keep them focused. All this led the business to decrease the prices which
proved to be adverse variation. Sun PLC can improve their budget variance by increasing their selling
price by affording and investing in technological advance equipment’s such as latest machinery which
would be more productive due to its speed and can help cut down any unnecessary employees hence
1
Alex Kamotho
EDBUS 2E
In this assignment I will evaluate the implications of budget variances for Sun PLC. I will also define
what budget and budgetary control is and then I will compare the results.
Budgets
Budgets are an estimation of the revenue and expenses over a specified future period of time. A
budget can be made for a person, family, group of people, business, government, country,
multinational organization or just about anything else that makes and spends money.
Budgetary Control
Budgetary Control refers to how well a business or an individual has utilized budgets to monitor,
control costs and operations in a given accounting period. In simple words it is the process to set
financial and performance goals with budgets that has to be compared with actual results and adjust to
improve efficiency for the business if needed.
Reason
There are many reason for business to set up budgets, mainly it is done so that they can improve the
performance of the business including financially. Budgets are done by businesses so that the
budgeted results can be compared with their actual results. For instant if Sun PLC had budgeted to
spend £500 on raw materials and ended up spending £600, which is more than they had budgeted
therefore it means that the variance analysis is adverse. Sun PLC can then learn from their mistake by
identifying where they spent more, which product they spent more on and is the product still popular
or not. This way they can save money and be with in their limited budgeted and the savings can help
Sun PLC to invest somewhere else where it can be productive.
Sales Variances
Variance Formula Calculation
Sales Price Variance Actual Price - Standard Price 2.80 – 3 x 190,000
x Actual Sales = 38,000 (A)
Sales Volume Variance Actual Sales - Standard Sales 190,000 – 180,000 x 3
x Standard Price = 0 (F)
For sales price variance, Sun PLC budgeted to sell their cooking oil at £3/bottle and was expecting to
sell 180,000 of them in one calendar year. Unfortunately they had to reduce the price to £2.80/bottle
but they sold 10,000 extra bottles that exceeded their estimate to 190,000 bottles. The business did
adverse as they were short of their budget by £8,000. This could be due to high competition and to
remain competitive they had to reduce the price of their bottles by 20p in order to gain and attract
more customers, which they were successful at. Another reason could be that they produced more
bottles then they needed and in order for them to get rid of the extra bottles they sold it at cheaper
price so that they don’t face storage issues in future too. This can be supported by the figures as Sun
PLC has paid more for material and labour cost. For instance, Sun PLC’s actual cost for employees
(labour) was £6.40 which was 20p more per employee, the raise could’ve been done in order to
motivate the employees and keep them focused. All this led the business to decrease the prices which
proved to be adverse variation. Sun PLC can improve their budget variance by increasing their selling
price by affording and investing in technological advance equipment’s such as latest machinery which
would be more productive due to its speed and can help cut down any unnecessary employees hence
1
