Standard costing is the predetermined costs for material (car manufacturing materials and spare parts), the labour involved in the process and overheads for a selected period. Variances, on the other hand, is a measure of the deviation between the budget and the actual outcome of a certain undertaken operations or activities, in this case, is the car manufacturing by the Nissan company. Regarding the analysis performed on the financials of the Nissan for the last financial year, the variances observed may have been caused by several factors like:
Errors: This is a common factor that, in most cases, can cause severe variances between the budget and the real outcomes generated from the activities undertaken by the Nissan company. While preparing the financials at the close of the period, there may be some unnoticed errors included in the financials which can cause the variances as observed between the forecast budgets and the actual outcomes.
Setting high expectations: at some time, the forecast budgets may have a high expectation which may lead to interfering with the actual outcome on the financials of the company. This indeed is a common factor that can also lead to variances in the financials of the company.
Regarding the above, the Nissan company should focus on the following variances:
Cost variances:
In the car manufacturing company, usually, there is a cost involved and the planned or budgeted amount. The deviation between the two gives a product of the cost variances. Two types of cost variances are the favourable and unfavourable cost variances. In case the planned amount is less than the actual cost, the condition is termed to favourable variance and when vice-verse, the situation is termed as the unfavourable variance. Among the variations that the company should focus on is the cost variance as indicated and discussed above.
Profit variances:
Profit and wealth maximisation is the core value of most businesses and companies unless the company is entirely formed for as a sole, not for profit-making. Nissan company on this ground is built on the original goal for the profit making. Whatever decision taken or made; profit is more considerable in this case. Just like any other company could have done, any variance in profit between one financial period and another should be critically investigated. Variances in profit arises due to difference in the actual profit and the planned profit level.
Variances in Income:
Sales between one or two periods should also be compared. Normally, variances are sales are caused by differences in the budgeted sales and the actual sales outcome. Any variances in sales/income should also be critically analysed. Considering the current case at hand with our Nissan company, the sales between the periods under consideration should be compared and any difference be closely investigated. This is another key variance that the Nissan company at large should focus on.