The performance reporting that my current organization utilized is Variance Analysis for Direct Materials and Direct labor. This is because we are a manufacturer which means we manufacture our own product and must understand the variances that go into the product and the the variances for the labor with assembling the product. Understanding the direct material costs is important because this analysis allows for an organization to understand the quantities on hand and how much they paid for each unit. All the factors that come into play are the actual quality of material purchased for production, material used in production, price paid per unit of material and then the standard prices for the material (Davis et al., 2020).

These variances can get convoluted because there are favorable pricevariance, unfavorable price variance, favorable quantity variance and unfavorable quantity variance. These all consider bulk purchases, standard versus cheaper pricing, price increases from supplier and logistics. This analysis is critical to my organizations because since we are commodity based (aluminum, steel, etc.) we are at the mercy of pricing changes, we deal with freight charges and we must understand how when purchasing in bulk or smaller orders, impacts our overheard.

We also have to take into account the labor/machinery associated with organizational costs. Understanding that employees might not operate at the efficiency level an organization may desire is crucial because they can understand when they are slower, faster and what is causing this variance. Also knowing other variances like whether we are utilizing skilled workers verus non-skilled, and how much overtime employees are using to complete the tasks help us understand where we need to make changes within our processes to become more efficient.

References

Davis C. E., & Davis E. (2020). Managerial Accounting, Enhanced e-text (4th ed.). John Wiley & Sons. ISBN-13: 9781119577669

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