A Cost Effective Environmental Management Solution

Question: Describe about the "Cost Effective Environmental Management Solution". Answer: Cost Variance Analysis: Cost variance analysis can be defined as the analytical process to ascertain the various reasons for the differences in the actual expenses and the budgeted expenses of an organization on a specific period (Kaplan and Atkinson 2015). As the total cost structure involves different types of cost, the variance can be created for various reasons. Hence, all the cost inputs should be analyzed properly to detect the accurate problems. Imaginary cost figures of Adani Minning are analyzed under three different methods of Cost Variance Analysis. a) Material Usage Variance: Material Usage Variance is adopted to measure the variances in the actual quantity consumed and the standard quantity of consumption for achieving the actual output. In the attached spreadsheet, few materials are remarked as adverse and others are considered as favorable (Messer 2016). The favorable condition may have created for :- Purchase of higher quality material than the standard material More involvement of skilled labors Increase in productivity due to training development programs Application of advanced machineries tools Whereas, the adverse variances use to occur for:- Purchase of inferior materials Employing unskilled labors Higher wastage due to poor condition of machineries equipments b) Labor Efficiency Variance: Labor Efficiency Variance explains the difference between the actual labor cost, incurred and the standard cost for the actual labor hours utilized to produce the actual output in a given period (DRURY 2013). The labor cost of Adani Minning includes two different set of labors with separate labor hours per day. Hence, the labor efficiency variance is also calculated differently for the different set of labors. The hourly labors efficiency variance is favorable for all the labors under that group. It may have happened due to:- Employing highly efficient skilled labors Developing the skills of labors by training programs Using easy to handle raw materials The salaried labor efficiency variance analysis is not showing any adverse or favorable results. It means that the hired labors are productive as per industry standard. c) Overhead Efficiency Variance: The overhead efficiency variance analysis measures the differences between the actual overhead incurred and the standard overhead cost for the output produced (Pollard 2014). For Adani Minning, costs of few overhead components are adverse, while others are favorable. The favorable variances may be caused by:- Using easy to handle raw materials Implementing advanced equipments technology Planning error Usage of high skilled labor, mainly, specialized in operating specific equipments The adverse effects may be aroused due to:- Wrong production processes Operating the equipments improperly Unskilled labors or inferior materials usage Technical problems Reference List: DRURY, C.M., 2013.Management and cost accounting. Springer Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning Messer, R., 2016. Teaching Variance Analysis for Cost Accounting: How to Achieve above Par Performance. InAdvances in Accounting Education: Teaching and Curriculum Innovations(pp. 51-63). Emerald Group Publishing Limited Pollard, W.B., 2014. An active learning approach to teaching variance analysis to accounting students.The E-Journal of Business Education Scholarship of Teaching,8(2), p.69