Variance Analysis:
Variance Analysis 2016
• Sales shows Unfavorable trend but still there is significant growth from Year 2015
• Meeting the growth forecast for 2016 more labor was hired but the forecast was below
the actual because fewer number of labor was forecasted and Govt increased the
minimum wage rate in 2016
• Variable Overheads shows Favorable - Cost of furnace oil, coal and power - half of cost
of sales. Significant decline in input prices (coal and FO). Coal and Furnace Oil prices
have declined.
• Manufacturing Overheads shows Favorable - Invested heavily in cost reduction
capitalizations including RDF and waste heat recovery plants. But electricity cost showed
and unfavorable variance as the Government of Pakistan planned to reduce spending on
electricity subsidies to 0.3-0.4 percent of gross domestic product (GDP) by mid-2016
• Selling and Administrative Expenses shows Favorable - As business expands, there is a
tendency for administrative and selling expenses to increase proportionately and get out
of line same is the case in our scenario. Salaries are also annually increased and there is
also an increase in allowances and other benefits
Variance Analysis 2017
• Cement industry overall experienced growth. However, actual sales are less than
forecasted so it is Unfavorable to company.
• Direct Material shows Favorable indication due to better sourcing.
• Meeting the growth forecast for 2017 more labour was hired but the forecast was below
the actual because fewer number of labour was forecasted and Govt increased the
minimum wage rate as well.
• Cost of furnace oil, coal is forecasted to increase because the high demand. The variance
is favorable because furnace oil and coal prices are well negotiated with suppliers.
• Total Variable Expenses are Favorable due to control of furnace Oil and Coal Prices
making Contribtion Margin Favorable as well
• Manufacturing overhead has unfavorable experience
• There is increase in salaries of existing and new employee who were hired to meet the
demand.
• There was increase in electricity and gas expenses which is posting unfavorable
condition.
• In Overall, Operating Profit is improved in actual which is a favorable indication
Variance Analysis 2018
• Demand of Cement witnessed significant growth due to ongoing CPEC projects.
• But Sales Growth is not likewise transformed to Revenue growth due to low price in
local market and PKR devaluation against USD.
• New Gov helm office and there are multi dimensional challenges faced i.e. Political,
economic and social.
• Due to economic uncertainty, inflation raised and DM & DL showing unfavorable
• Overall Sales Price is under pressure
• Sales Volume is increased so the corresponding expenses of Furnace Oil & Coal are also
increased significantly in comparison to Year 2017.
• Due to above said factors, the currency devaluation was envisaged according to the
market news but in actual, PKR was not depressed as expected. So, the variance for
Furnace Oil & Coal is Favorable.
• The Supplies are also giving Favorable indication due to above said factor and
installation of new machinery.
• Total Variable Expenses decreased in actual so CM is improved. Both showing Favorable
results for company.
• Overall expenses under Manufacturing Overhead reduced and giving Favorable
indication
• Other expenses has increased which are dominated by the funds for employees and
Exchange loss which is Unfavorable to company.
• The Overall Fixed cost is increased so, the Operating Profit is less than forecasted and
Unfavorable
Variance Analysis 2019
• Slow demand, price war and unfavorable export market to affect the sales side and rising
cost of production due to general inflation, utility prices, devaluation of currency and
interest rate hike to affect the cost side
• FY19 has registered decline in profitability for overall cement sector.
• Government slashed PSDP funds. Even the projects in process had to be slowed down
due to non-availability of funds
• Amidst slow local demand, increase in production capacities, further deteriorated the
effective sales utilization of industry
• Declining purchasing power of people affected their ability to invest in housing sector
• Sales are slightly decreased in actual to forecasted and unfavorable to the company.
• Exports faced set back with decline in quantity due to imposition of 200% duties by India
• Direct material is in favorable condition to the company.
• DL is unfavorable to the company due to higher inflation.
• The variance shows a unfavorable value in manufacturing overhead. Royalty expenses
has increased than forecast
• Depreciation cost is really high due to installation of new cement plant in HUB,
Balochistan. However, it is still favorable.
• Unfavorable Operating Income. Due to the fact that CM is unfavorable.
Variance Analysis 2020
• Government has increased Federal Excise Duty on Cement causing increase in sales
Price.
• Local Demand contracted due to COVID-19 lockdown
• Export Sales also has negative impact – difficult to explore new export market due to
slow down in global economy
• Existing sales to India also faced set back
• Coal drastic increase in international coal and diesel prices leading to increase in the cost
of cement production
• Furnace Oil looks more attractive as a fuel and favorable for DG Cement.
• Increase in sales price increase the actual contribution margin as compared to Forecasted