Section 7 of 8
| Variance | Favourable causes | Adverse causes |
|---|---|---|
| Sales price | Reduced competition (rival exits market); material/labour cost increases passed on to consumers; improved product quality or new model | Increased competition (new rival enters); material/labour cost decreases passed on to consumers |
| Sales volume | Demand boosted by favourable changes in fashion/tastes/trends; enhanced quality/reputation; gain in market share or growing market | Demand shrinkage due to adverse changes in fashion/tastes/trends; loss of market share; reduced quality/reputation; declining market |
| Material price | Negotiated trade discount for bulk buying; changed to a cheaper supplier; inferior quality material purchased; abundance of raw materials in market | No trade discount due to lower quantities purchased; changed to a more expensive supplier; superior quality material purchased; scarcity of raw materials |
| Material usage | Superior quality material → less waste/scrappage; no machine breakdowns; no theft; better storage of perishables; more highly skilled labour using materials more efficiently | Inferior quality material → more waste/scrappage; machine breakdown; theft; deterioration/obsolescence; lower skilled labour |
| Labour rate | Surplus of labour in market (easier to recruit); cheaper lower-skill labour; no overtime or bonuses | Shortage of labour in market; higher-skill/qualified workforce; overtime at premium rates or bonuses; wage inflation; rise in minimum or living wage rates |
| Labour efficiency | Higher employee motivation (better management/conditions); training and development; better machinery (more capital intensive) | Lower motivation/declining morale; poor working conditions; machine breakdowns causing bottlenecks; lack of supervision; industrial action (strikes); idle time due to lack of materials/orders |
Often there is a correlation between sub-variances. The cause of one variance may directly cause the opposite direction in a related variance:
Sales:
Materials:
Labour:
These interrelationships mean the total variance may be small even though individual sub-variances are large (they cancel each other out). This is why sub-variances are needed to locate the specific areas to investigate.
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