You are a qualified Management Consultant of Hoa Sen Group Joint Stock Company. This is the number 1 enterprise in the field of steel sheet production and trading in Vietnam and the leading steel sheet exporter in Southeast Asia. You have been commissioned by three scenarios to advise them on the value of management accounting systems as well as the need for a strategic perspective. Your brief is to produce an initial advisory report which sets out the benefits of management accounting techniques and robust management accounting systems.

You will need to prepare a report which focuses on the following:

- Referring to Scenario 2, highlights the budgeting function and analysis of variances, with suggestions for investigation and management action.

Scenario 2 You are a chief accountant of one of Hoa Sen subsidiary. You have been provided with the following operating statement, which represents an attempt to compare the actual performance for the quarter that has just ended with the budget. Budget Actual Variance Number of units sold (000) 550 620 70 $000 $000 $000 Cost of sales (all variable) Materials 168 154 14 Labour 240 268 (28) Overheads 35 40 (5) 443 462 (19) Fixed labour cost 120 105 15 68 170 75 165 (7) 5 Selling and distribution costs Fixed Variable Administration costs Fixed Variable 180 55 593 1036 1,100 64 178 61 584 1,046 1,175 129 2 (6) 9 (10) 75 65 Total costs Sales Net profit However, you do not agree with the above variance figures and presumes that the variances are not nearly as meaningful as they could be. Costs were higher than budget because the volume of output was higher; variable costs would be expected to increase above the budgeted costs in the fixed budget. There is no information to help decide whether any action is needed for any aspect of costs or revenue. For control purposes, it is therefore necessary to know the answers to questions such as: were actual costs higher than they should have been to produce 620,000 units? You are now trying to re-calculate the variances, in order to find out the possible reasons why they might have occurred