variances u/f

• Direct Material Price V. FAVOURABLE?

  Cheaper supplier of raw material found
• reason DM usage variance FAVOURABLE?

  use of higher grade raw material than described in standard and may, in some cases, result in firms using a smaller quantity of raw materials
• reason DL RATE variance FAVOURABLE?

  Greater than expected use of low qualified, cheap to employ workers
• reason DL EFFICIENCY variance FAVOURABLE?

  improved productivity achieved by better motivated employees

  • introduction of new, more efficient plant and equipment
• Direct materila price v. UNFAVOURABLE?

  unexpected increase in purchase price of raw material
• DM USAGE variance- UNFAVOURABLE?

  wastage of raw materials by poorly trained/inexperienced workers
• DL RATE variance- UNFAVOURABLE?

  an unexpected wage rise

  • using high paid workers to do job normally carried out by lower paid workers
• DL efficiency variance- UNFAVOURABLE?

  poorly trained/inexperienced employees

  • plant and equipment breakdowns, forcing employees to take time off work
• Cost leadership?

  lowering costs & price paid by consumers to gain competitive advantage

  Achieved by:

  -        Reducing wastage & inefficiencies in all areas

  -        Automation of process

  -        Direct purchase from source rather than 3rd parties in supply chain
• DIFFERENTIATION?

  Provide a good/service that’s innovative or different from competitors to gain competitive advantage

  Achieved by:

  -        New features

  -        Different origin

  -        Branding

  -        Quality

  -        Service & interactions

  -        Performs functions competitors do not

  -        Design

  -        Advertising

  -        Pricing model (eg. Subscriptions)