What was originally reported as $38,900 favorable compared to budget, has been determined via the analysis to be $85,400 unfavorable ($23,650 of favorable labor rate variance and $109,050 of unfavorable efficiency variance). Assuming that the performance report is for the final month of the fiscal year, what is your reaction to it?

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The reported variance of $38,900 in favorable versus budget looks very positive. This indicates that the organization has met its financial targets for fiscal year. This figure is inaccurate. It actually shows a deficit of $85,400, which includes $109,050 in unfavorable efficiency variation and a favorable labor rate variance of $38,900. This discrepancy shows how crucial it is to thoroughly investigate variances to obtain an accurate picture on performance.

The fact that the report only represents the end of fiscal year results makes it even more troubling. Any potential solutions can have very limited impact. It is important to quickly address the issue by researching ways that operational efficiency could be increased. This includes adjusting staffing levels, introducing new technologies and processes where appropriate. I also recommend making sure managers are fully aware of their cost control responsibilities.

It is crucial that organizations keep an eye on key performance indicators (KPIs), but pay particular attention to discrepancies in actual and expected results. This allows companies to identify areas that need improvement and reduce potential problems before they turn into major issues down the line. It also gives them greater certainty for sustainability and long-term success.

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