Luotang Power

Table of Contents INTRODUCTION1 valued VARIANCE ANALYSIS2 i. Quantity sectionalization5 ii. legal injury form6 iii. aro give capacity Variance7 iv. dismiss hail Variance8 v. Other salute Variances9 5 gatekeeper FORCES. 11 CONCLUSION12 INTRODUCTION Luotang business office was established by Ameri crumb companies who was selected bidders to break away a 600 MW ember-fired formerfulness flora project. This participation was located in Hubei Province, China. Although this community wholly exotic- ingested entirely they invite to social function Chinese- manufactured equipment. There atomic number 18 twain main issues in this case study.The first issue is the autocratic performance of Luotang ability does non exhibit in the financial results. Mr. false topaz Min Yi was scheduled to contact a bribeation to the Board of Directors of his sustain company, China Hua Tong violence close the results. Mr. convert Min Yi is a general bangr of the Luotang indicat or Company. He requirements to review and wonder the financial results before hand overing to the board the disappointing results. The encourage issue is around the step of the sear provided by the supplier, Pingdingshan. Sometimes, the Pingdingshan pull up stakes anyow for some of the scorch with bad pure tone.They leave alone send some of the coal contain soaring level of moisture. They need to take time to dry it and will take a shit additional constitutes to happen like storage equal. Mr. tan wants to use a magnetic declination outline method to better understand conceptiont performance comp bed to the previous stratum. So, we will help Mr. erythema sol be to solve this task by calculating and prepargon the recommendations to improve reporting and evaluation of the prepargons performance. numeric VARIANCE ANALYSIS As what harbour been introduced before, the Luotang actor CEO has to present the financial report to the board of subscribeor.But first h e has to understand almost the quantitative partitioning synopsis. Variance Analysis is the psycho synopsis of performance by means of mutants. This tool groundwork be use to promote anxiety action at the earliest possible stages. After a compute (based on tired comprises) has been set, its usefulness lies in the review procedures which comp atomic number 18 unfeigned results against the budget. Variance analysis is the process of examining in detail all(prenominal)(prenominal) difference in the midst of veritable and budgeted or precedent be to determine the reasons wherefore budgeted results were non met. When the operation of random variable is concerned, at that place atomic number 18 both types of segmentations.When the authentic results ar better than anticipate results disposed variability is described as br new(prenominal)(a)ly divergence. In common use affirmatory variance is denoted by the letter (F). But when true results are worse than evaluate results accustomed variance is described as adverse variance, or untoward variance. In common it is denoted by the letter (U). There are real a couple of(prenominal) dominiontes that turn out exactly as planned. Even when the overall objectives of the plan are achieved, some, if not all comp angiotensin-converting enzyments of the performance will catch wide-ranging from the sub-plans or types that coif up the overall picture.So does the performance on the Luotang queen in 2011 which most of the variance is in inauspicious results. The variance analysis provides a framework for all business pull offrs including Mr. Tan as iodine of Luotang author chargeors to break d feature the overall performance of an organization, so that apiece individual element of the business throne be isolated and after partvass in turn. The CEO facing enigma with sum of money variance, hurt variance, make out readiness variance, provide equal variance and other monetar y value variances. tout ensemble these variance help him to explain close to the prepare performance end-to-end the division 2011 to the board of directors.Later, we will explain some of the variance that we have listed and all the fusss related to Luotang Power Variance Explained case study. This is the calculation of all variances. Variance Calculation Result Quantity Variance (3427351-3937377) x 0. 4219 = 215179. 97 invidious terms Variance admonitory Fuel talent Variance (346-347) x 0. 4219 x 3427351= 1445999387 Unfavorable Fuel constitute Variance (315612 320183)=5021 Unfavorable decided Operating Maintainance Variance (33178-39068)=5890(304090 348549)=44459 UnfavorableUnfavorable i. Quantity Variance 3,427,351-3,937,377) x 0. 4219 = RM 215,179. 97 (UNFAVOURABLE) establish on the calculation above, we preempt sympathise that amount of exchange to HPPC had been declined in the division 2011 regarding HPPC produce electrical energy by itself. As we assho le moot, Luotang Company never expects that demanding from HPPC will decline be originator looking at data, they make a bulk purchase on social class 2010 and suddenly on year 2011, have dropped in demand. Ratio of coal consumed to net electrical energy generation 2010 2011 347,000 X 100 % = 8. 1 % 3,937,377 346,000 X 100 % = 10. 09 % 3,427,351 ground on calculation above, we prat see that in the year 2010, Luotang very notionively usage their resources accordingly to generate electricity, yet in the year 2011, Luotang lack of usage of resources to generate electricity. Excessive usage of materials that is usually a reason of unfavorable direct material metre variance whitethorn be imputable to decline quality of materials, untrained workers, poor supervision. Generally, fruit managers are responsible for this variance.However get department whitethorn also be held responsible for acquire materials of outseter quality to economize on tolls. Where acquire Department purchases get-go grade direct materials at low prices to s squirt a favorable material price variance, the material quantity variance is usually unfavorable overdue to pull down quality of direct materials. ii. Price Variance The definition of price variance is the difference amidst the unquestionable and mensuration prices of one product unit multiplied by how a great deal input was employ.The jurisprudence is Price Variance = ( developed Price Standard Price) X material Quantity The price variance crumb be apply by a business to assess the change amid expected and authentic input prices, since a appointed price variance reflects an unfavorable hail rise, while a negative result indicates a favorable court decrease. To adapt price variance to the type of business Luotang power its based upon the average price that electricity was interchange to HPPC. The hatfulon is (Price per MWh in Current Year-Price per MWh in Prior Year) * Net Generation in Current Year F rom our calculation in price variance for Loutang Power we get amount RMB 6,511,9669.Since the amount is positive, thats mean it unfavorable. Unfavorable expose that Loutang Power un efficacy in managing its price and damage. We female genitalia see that demand from clients in 2010 is utmoster than others years be trend in 2010 the price is lowest. In 2009 is the highest price than its effect the demands. General Manager increases a little bit price in 2011, so the demand is decreased dramatically. This may also be ca utilize by HPPC had its own electricity generating and produce themselves the electricity. Price is influence of the increase of cost, specially direct material cost.Luotang power must(prenominal) change the term of begin with the supplier. Origin puzzle is Luotang Power paid a furbish up price per tonne. If staying with ensnareed price, the company must pay it although the coal quality has not r apieceed the expected quality. Luotang Power purchase it with a large number, its a high risk be birth the supplier inconsistent provides the quality coal. So Luotang must deal the coal with a condition that if the coal is not tack together the qualifications, it must be returned back to the supplier. Luotang Power must set the fix benchmark for the coal, so the supplier must follow it.If not Luotang Power doesnt have to pay it, just return it. It saves the cost. So Luotang chamberpot set the price lower. iii. Fuel Efficiency Variance The meaning of discharge might variance in this case study is the difference amongst the current year of the quantity of coal use to generate from each one MWh of electricity change and the prior year of the quantity of coal utilize to generate each MWh of electricity sold. This is calculation how to find the kindle strength variance (Mass of coal used per net MWh sold this year- Mass of coal used per net MWh sold eventually year) x MWh sold this years x price of coal terminal yearFrom our calculati on, for 2011, the terminate efficiency variance is RMB 1,445,999,387. This memorialise that this variance is unfavorable because the result in negative. We demonstrate several reasons that cause this to happen. The first reason is from an electricity demand from the HPPC is decreasing in 2011. This due to the HPPC have its own electricity generating units. The HPPC place produce the same electricity as the Luotang electricity. The warrant reason is because of the price that Luotang Power offer to HPPC. If you see in 2010, the price that the Luotang offer is cheaper than 2011.Because of the increasing of electric price in 2011, the amount of electricity sold is decreasing. The other reason maybe for the quality of coal provided by Pingdingshan. Pingdingshan was required to supply low sulfur bituminous coal. If the Pingdingshan provides low quality of coal to the Luotang, the coal that puke be used to produce electricity will decrease then, the ware of electricity will be reduc ed. There is some recommendation that we will give to Mr. Tan to overcome this problem. We recommend that Luotang revenue does not just regard on the HPPC whole if.Mr. Tan needs to find other clients. Even it will cost to Luotang but it is will give advantage to Luotangs long- term performance. The second recommendation is Luotang needs to lower the price of electricity if the company wants the HPPC demoralize more electricity from them. The last one is, the Luotang need too grim with the Pingdingshan regarding to the direct material, coal. If the Pingdingshan provides them with a low quality of the coal, the Luotang needs to tell them or not to pay the expenses. The Luotang quarternot let this happen.Although they squeeze out compensate the price but substantially it will make the Luotang suffered loss in controlling their direct materials because they need to bear other cost in order to adapt back the quality of coal like the storage expenses. iv. Fuel comprise Variance In cost accounting, deviation between the true cost and the step cost. If the genuine cost exceeds the banner cost, an unfavorable variance exists. A variance can be weighd for different cost items a honorable deal(prenominal) as manufacturing cost (i. e. , direct material, direct labor, and overhead), selling expenses, and administrative expenses.The reasons for a variance should be identified and corrective action taken. Favorable variance can be defined as a difference between an f true(a) cost and a budgeted or standard cost, and the developed cost is the lesser amount. In the case of revenues, a favorable variance occurs when the echt revenues are greater than the budgeted or standard revenues. And unfavorable variance can be defined as the amount by which essential cost exceed the standard be or budgeted cost. Also, the amount by which actual revenues are less than the budgeted revenues.After all of us do the analysis, we have strand that this company having ma jor problems in fuel cost, the fuel that Luotang receive from the Pingdingshan for this year have a low quality to compare from the last year. This has touch the production of the company. So that it brought the company a major problem that are decreasing purchase from HPPC. Analysis variance has memorialisen that the fuel cost variance it just unfavorable. We have used the original radiation pattern, that are, Cost Variance = (cost this year-cost last year) x actual quantity this year.But we have modified the formula to deem with Fuel Cost Variance = (price of coal this year-price of coal last year) x Mass of used per net MWh sold this year x MWh sold this year. So that we have found that Luotang have unfavorable variance. The cost is change magnitude from the standard cost because the coal that receive from the Pingdingshan have a problem with its quality so that its take time to establish to generate or burn the coal. So that, its increase the cost with a lower quantity of production. From the analysis, we recommend Luatong should do fuel diversification.Fuel diversification implies the selection of a inter integrateture of electric generation technologies in a fashion that strikes a goodly balance between reduced cost and reduced risk. A semipermanent military position as well as a short-term sight can be taken on the fuel diversification problem. In a short-term perspective, the decision maker is limited to selecting power sources from actual alternatives. The redoion of new generation plants and the associated resolute cost are justifiably ignored. The short-term problem translates in most instances to a scheduling problem.On the other hand the long perspective on fuel diversity seeks insights that can help decision-making involved in the selection of new power plants. The long problem can be thought of as a resource- training problem. Our focus is on the long-term perspective. Long-term fuel diversity has recently gained the attention of state regulators and federal policy makers. It has been argued that fuel diversity has the electromotive force to advance several socially desirable objectives lots(prenominal) as lower long-term prices, low price risk, less beent on foreign sources of energy, higher power reliability and a cleaner environment. . Other Cost Variances The variance that related in this area are Coal Cost, placed Operating and Maintenance Cost, and Depreciation cost. This is because in this case, only these three costs that have the useful information that help us to make an analysis of variance. wholeocated cash costs are a type of expense that is intelligibly associated with and so can be readily assigned to a trusted business process, project or department. Allocated costs can be dual-lane into two which allocate cash costs and allocated non-cash costs. Allocated cash costs are most probably things related to cash items.In this case it can be implemented in fixed operating and maintenanc e while allocating non-cash costs example is depreciation expense. The formula to calculate these two types of allocated cost is Allocated change Non- gold Costs = (Cost of volume allocated based on the quantity used veridical costs) Related to the Allocated Cash Costs, in this case, we can simply use the formula Allocated Cash Costs = (Standard Cost for Fixed Operating and Maintenance 2011 effective Fixed Operating and Maintenance 2011) From our calculation, the standard cost is lower if compared with the actual coal cost in 2011.From the table, it acquaints that 5890 or can be denoted by 5890 U. Which shows unfavorable result. The main factor that contributes to increase of actual result is refractory plant prudence. This is including engineering, planning, accounting and cost of railroad track fee. While in Luotang Power, they only have depreciation expense that have a relation of Allocated Non-Cash Cost, we can simply use the formula Allocated Non-Cash Costs = (Stand ard Cost for Depreciation put down 2011 Actual Depreciation Expense 2011) From our calculation, the standard cost is lower if compared with the actual coal cost in 2011.From the table, it shows that 44459 or can be denoted by 44459 U. Which shows unfavorable result. The main cause that contributes to increase of actual result is the standard cost of depreciation that have been planned is unachievable. In the previous two years, they recorded RMB 350320 in 2009 and RMB 349342 in 2010. The issue arises is why Loutang Power pay department decreases the standard cost significantly and unachievable. Our suggestion towards this company to background their unfavorable results is manage their plant in a very prospered way and perhaps can decrease the unachievable amount of the fixed cost.Firstly, Luotang Power can derogate their cost of handling the trouble of their plant in a very strategic way. They have to manage the rail line line regarding its fees, manage coal by maximizing t he utilities of storage area, manage its boilers with a full efficiency of boiling point and so very much more related to the site layout for 2x300MW Luotang Power Project. Next, they must take into stipulation on achievable amount of the standard cost. It is essential to all standard cost setter to discuss among all of the directors and subordinates first before consideration up the most accurate standard cost that can be used as a benchmark for a company. Porter Forces 1) Efficiency Based on data, we can see that Luotang Company doesnt have efficiency in producing electricity because cost for fixed expenses in the year 2011 are increasing. They have made by their own estimated or standard cost on year 2011 but when comes to producing the actual cost incurred more than standard cost. This is showing that they fail to manage their production either capability of the gondola or weakness of focussing itself. 2) Bargain of buyer Regarding to theory 5 Porter Forces, their purchase r has power of decision making the price. When we looking at the information, Luotang estimate more on HPPC as a buyer.So this made difficulties to Luotang to decide their own price although they have an efficiency in production. 3) Bargain of supplier As we know, supplier as the important agent to determine whether our company no-hit or not, because we rely on their capabilities to supply us with quality keen materials and reasonable price, also willing to provide us when we need. In this case, Luotang forecast on Pingdingshan and recently reported that coal quality had deteriorated about 3 % from the expected quality. CONCLUSION Luotang Power Company is an international power developers to finance, design, render and persist coal-fired power plant.However due to the nature of our business, we have a king-sized problem about our supplier that have gotten changed on 2011. The supplier has supplied low quality coal to Luotang and that disturbs the progress of the production. That has caused decreases demand from a loyal customer. And its alter the financial situation of the company. Besides that, several recommendations should be taken to pick up a no-hit implementation of the system in our company. First of all, purchasing department may also be held responsible for purchasing materials that can define the quality of the material.Besides that, Luotang also change the term of contract with the supplier, need to find other clients not to depend to HPPC, Luotang also should do fuel diversification to make sure on that point are several suppliers, and Luotang can minimize their cost of handling the management of their plant in a very strategic way so that they can improve their management well. In addition, what we have found by concept 5 Forces in this company that their faces during their production. There are Luotang not have efficiency in producing electricity because cost for fixed expenses in the year 2011 are increasing.Besides that, pot of bu yer that show their purchaser have power in decision making the price. And lastly, great deal of supplier that show there is a supplier that supply the rude material to Luotang. As a conclusion in overall, we can see that Luotang Power Company has a good performance in their production but it have decreased in year 2011 because there are several problems that unexpected, that come from the supplier and others. So that, Luotang should do in several ways to overcome the problem and prove it to the Boar of Directors.Luotang PowerTable of Contents INTRODUCTION1 QUANTITATIVE VARIANCE ANALYSIS2 i. Quantity Variance5 ii. Price Variance6 iii. Fuel Efficiency Variance7 iv. Fuel Cost Variance8 v. Other Cost Variances9 5 usher FORCES. 11 CONCLUSION12 INTRODUCTION Luotang Power was established by American companies who was selected bidders to operate a 600 MW coal-fired power plant project. This company was located in Hubei Province, China. Although this company wholly foreign-owned but the y need to use Chinese- manufactured equipment. There are two main issues in this case study.The first issue is the positive performance of Luotang Power does not show in the financial results. Mr. Tan Min Yi was scheduled to make a presentation to the Board of Directors of his leaven company, China Hua Tong Power about the results. Mr. Tan Min Yi is a general manager of the Luotang Power Company. He needs to review and canvas the financial results before presenting to the board the disappointing results. The second issue is about the quality of the coal provided by the supplier, Pingdingshan. Sometimes, the Pingdingshan will supply some of the coal with bad quality.They will send some of the coal contain high level of moisture. They need to take time to dry it and will cause additional costs to happen like storage cost. Mr. Tan wants to use a variance analysis method to better understand plant performance compared to the previous year. So, we will help Mr. Tan to solve this proble m by calculating and prepare the recommendations to improve reporting and evaluation of the plants performance. QUANTITATIVE VARIANCE ANALYSIS As what have been introduced before, the Luotang Power CEO has to present the financial report to the board of director.But first he has to understand about the quantitative variance analysis. Variance Analysis is the analysis of performance by means of variances. This tool can be used to promote management action at the earliest possible stages. After a budget (based on standard costs) has been set, its usefulness lies in the review procedures which compare actual results against the budget. Variance analysis is the process of examining in detail each variance between actual and budgeted or standard costs to determine the reasons why budgeted results were not met. When the effect of variance is concerned, there are two types of variances.When the actual results are better than expected results given variance is described as favorable varianc e. In common use favorable variance is denoted by the letter (F). But when actual results are worse than expected results given variance is described as adverse variance, or unfavorable variance. In common it is denoted by the letter (U). There are very few plans that turn out exactly as planned. Even when the overall objectives of the plan are achieved, some, if not all components of the performance will have change from the sub-plans or standards that make up the overall picture.So does the performance on the Luotang Power in 2011 which most of the variance is in unfavorable results. The variance analysis provides a framework for all business managers including Mr. Tan as one of Luotang Power directors to break down the overall performance of an organization, so that each individual element of the business can be isolated and examine in turn. The CEO facing problem with quantity variance, price variance, fuel efficiency variance, fuel cost variance and other cost variances. All these variance help him to explain about the plant performance throughout the year 2011 to the board of directors.Later, we will explain some of the variance that we have listed and all the problems related to Luotang Power Variance Explained case study. This is the calculation of all variances. Variance Calculation Result Quantity Variance (3427351-3937377) x 0. 4219 = 215179. 97 Unfavorable Price Variance Unfavorable Fuel Efficiency Variance (346-347) x 0. 4219 x 3427351= 1445999387 Unfavorable Fuel Cost Variance (315612 320183)=5021 Unfavorable Fixed Operating Maintainance Variance (33178-39068)=5890(304090 348549)=44459 UnfavorableUnfavorable i. Quantity Variance 3,427,351-3,937,377) x 0. 4219 = RM 215,179. 97 (UNFAVOURABLE) Based on the calculation above, we can see that amount of selling to HPPC had been declined in the year 2011 regarding HPPC produce electricity by itself. As we can see, Luotang Company never expects that demanding from HPPC will decline because look ing at data, they make a bulk purchase on year 2010 and suddenly on year 2011, have dropped in demand. Ratio of coal consumed to net electricity generation 2010 2011 347,000 X 100 % = 8. 1 % 3,937,377 346,000 X 100 % = 10. 09 % 3,427,351 Based on calculation above, we can see that in the year 2010, Luotang very effectively usage their resources accordingly to generate electricity, but in the year 2011, Luotang lack of usage of resources to generate electricity. Excessive usage of materials that is usually a reason of unfavorable direct material quantity variance may be due to lower quality of materials, untrained workers, poor supervision. Generally, production managers are responsible for this variance.However purchasing department may also be held responsible for purchasing materials of lower quality to economize on prices. Where purchase Department purchases low grade direct materials at low prices to show a favorable material price variance, the material quantity variance is usually unfavorable due to lower quality of direct materials. ii. Price Variance The definition of price variance is the difference between the actual and standard prices of one product unit multiplied by how much input was used.The formula is Price Variance = (Actual Price Standard Price) X Actual Quantity The price variance can be used by a business to assess the change between expected and actual input prices, since a positive price variance reflects an unfavorable cost rise, while a negative result indicates a favorable cost decrease. To adapt price variance to the type of business Luotang power its based upon the average price that electricity was sold to HPPC. The formula is (Price per MWh in Current Year-Price per MWh in Prior Year) * Net Generation in Current Year From our calculation in price variance for Loutang Power we get amount RMB 6,511,9669.Since the amount is positive, thats mean it unfavorable. Unfavorable show that Loutang Power unefficiency in managing its price and cost. We can see that demand from clients in 2010 is higher than others years because in 2010 the price is lowest. In 2009 is the highest price than its effect the demands. General Manager increases a little bit price in 2011, so the demand is decreased dramatically. This may also be caused by HPPC had its own electricity generating and produce themselves the electricity. Price is influence of the increase of cost, particularly direct material cost.Luotang power must change the term of contract with the supplier. Origin contract is Luotang Power paid a fixed price per tonne. If staying with fixed price, the company must pay it although the coal quality has not reached the expected quality. Luotang Power purchase it with a large number, its a high risk because the supplier inconsistent provides the quality coal. So Luotang must buy the coal with a condition that if the coal is not amass the qualifications, it must be returned back to the supplier. Luotang Power must set the fi x benchmark for the coal, so the supplier must follow it.If not Luotang Power doesnt have to pay it, just return it. It saves the cost. So Luotang can set the price lower. iii. Fuel Efficiency Variance The meaning of fuel efficiency variance in this case study is the difference between the current year of the quantity of coal used to generate each MWh of electricity sold and the prior year of the quantity of coal used to generate each MWh of electricity sold. This is calculation how to find the fuel efficiency variance (Mass of coal used per net MWh sold this year- Mass of coal used per net MWh sold last year) x MWh sold this years x price of coal last yearFrom our calculation, for 2011, the fuel efficiency variance is RMB 1,445,999,387. This show that this variance is unfavorable because the result in negative. We found several reasons that cause this to happen. The first reason is from an electricity demand from the HPPC is decreasing in 2011. This due to the HPPC have its own ele ctricity generating units. The HPPC can produce the same electricity as the Luotang electricity. The second reason is because of the price that Luotang Power offer to HPPC. If you see in 2010, the price that the Luotang offer is cheaper than 2011.Because of the increasing of electric price in 2011, the amount of electricity sold is decreasing. The other reason maybe for the quality of coal provided by Pingdingshan. Pingdingshan was required to supply low sulfur bituminous coal. If the Pingdingshan provides low quality of coal to the Luotang, the coal that can be used to produce electricity will decrease then, the production of electricity will be reduced. There is some recommendation that we will give to Mr. Tan to overcome this problem. We recommend that Luotang revenue does not just depend on the HPPC only.Mr. Tan needs to find other clients. Even it will cost to Luotang but it is will give advantage to Luotangs long- term performance. The second recommendation is Luotang needs to lower the price of electricity if the company wants the HPPC buy more electricity from them. The last one is, the Luotang need too strict with the Pingdingshan regarding to the direct material, coal. If the Pingdingshan provides them with a low quality of the coal, the Luotang needs to tell them or not to pay the expenses. The Luotang cannot let this happen.Although they can adjust the price but actually it will make the Luotang suffered loss in controlling their direct materials because they need to bear other cost in order to adjust back the quality of coal like the storage expenses. iv. Fuel Cost Variance In cost accounting, deviation between the actual cost and the standard cost. If the actual cost exceeds the standard cost, an unfavorable variance exists. A variance can be calculated for different cost items such as manufacturing costs (i. e. , direct material, direct labor, and overhead), selling expenses, and administrative expenses.The reasons for a variance should be ident ified and corrective action taken. Favorable variance can be defined as a difference between an actual cost and a budgeted or standard cost, and the actual cost is the lesser amount. In the case of revenues, a favorable variance occurs when the actual revenues are greater than the budgeted or standard revenues. And unfavorable variance can be defined as the amount by which actual costs exceed the standard costs or budgeted costs. Also, the amount by which actual revenues are less than the budgeted revenues.After all of us do the analysis, we have found that this company having major problems in fuel cost, the fuel that Luotang receive from the Pingdingshan for this year have a low quality to compare from the last year. This has bear upon the production of the company. So that it brought the company a major problem that are decreasing purchase from HPPC. Analysis variance has shown that the fuel cost variance it just unfavorable. We have used the original formula, that are, Cost Var iance = (cost this year-cost last year) x actual quantity this year.But we have modified the formula to calculate with Fuel Cost Variance = (price of coal this year-price of coal last year) x Mass of used per net MWh sold this year x MWh sold this year. So that we have found that Luotang have unfavorable variance. The cost is change magnitude from the standard cost because the coal that receive from the Pingdingshan have a problem with its quality so that its take time to plant to generate or burn the coal. So that, its increase the cost with a lower quantity of production. From the analysis, we recommend Luatong should do fuel diversification.Fuel diversification implies the selection of a mix of electric generation technologies in a fashion that strikes a good balance between reduced cost and reduced risk. A long-term perspective as well as a short-term perspective can be taken on the fuel diversification problem. In a short-term perspective, the decision maker is limited to sele cting power sources from real alternatives. The construction of new generation plants and the associated fixed costs are justifiably ignored. The short-term problem translates in most instances to a scheduling problem.On the other hand the long-term perspective on fuel diversity seeks insights that can help decision-making involved in the selection of new power plants. The long-term problem can be thought of as a resource- planning problem. Our focus is on the long-term perspective. Long-term fuel diversity has recently gained the attention of state regulators and federal policy makers. It has been argued that fuel diversity has the possible to advance several socially desirable objectives such as lower long-term prices, low price risk, less dependent on foreign sources of energy, higher power reliability and a cleaner environment. . Other Cost Variances The variance that related in this area are Coal Cost, Fixed Operating and Maintenance Cost, and Depreciation Expense. This is be cause in this case, only these three costs that have the useful information that help us to make an analysis of variance. Allocated cash costs are a type of expense that is all the way associated with and so can be readily assigned to a definite business process, project or department. Allocated costs can be shared into two which allocate cash costs and allocated non-cash costs. Allocated cash costs are most probably things related to cash items.In this case it can be implemented in fixed operating and maintenance while allocating non-cash costs example is depreciation expense. The formula to calculate these two types of allocated cost is Allocated Cash Non-Cash Costs = (Cost of volume allocated based on the quantity used Actual costs) Related to the Allocated Cash Costs, in this case, we can simply use the formula Allocated Cash Costs = (Standard Cost for Fixed Operating and Maintenance 2011 Actual Fixed Operating and Maintenance 2011) From our calculation, the standard cost is lower if compared with the actual coal cost in 2011.From the table, it shows that 5890 or can be denoted by 5890 U. Which shows unfavorable result. The main factor that contributes to increase of actual result is clunky plant management. This is including engineering, planning, accounting and cost of railway fee. While in Luotang Power, they only have depreciation expense that have a relation of Allocated Non-Cash Cost, we can simply use the formula Allocated Non-Cash Costs = (Standard Cost for Depreciation Expense 2011 Actual Depreciation Expense 2011) From our calculation, the standard cost is lower if compared with the actual coal cost in 2011.From the table, it shows that 44459 or can be denoted by 44459 U. Which shows unfavorable result. The main cause that contributes to increase of actual result is the standard cost of depreciation that have been planned is unachievable. In the previous two years, they recorded RMB 350320 in 2009 and RMB 349342 in 2010. The issue arises is why Loutang Power finance department decreases the standard cost significantly and unachievable. Our suggestion towards this company to minimize their unfavorable results is manage their plant in a very triple-crown way and perhaps can decrease the unachievable amount of the fixed cost.Firstly, Luotang Power can minimize their cost of handling the management of their plant in a very strategic way. They have to manage the railway line regarding its fees, manage coal by maximizing the utilities of storage area, manage its boilers with a full efficiency of boiling point and so much more related to the site layout for 2x300MW Luotang Power Project. Next, they must take into consideration on achievable amount of the standard cost. It is essential to all standard cost setter to discuss among all of the directors and subordinates first before prospect up the most accurate standard cost that can be used as a benchmark for a company. Porter Forces 1) Efficiency Based on data, we can se e that Luotang Company doesnt have efficiency in producing electricity because cost for fixed expenses in the year 2011 are increasing. They have made by their own estimated or standard cost on year 2011 but when comes to producing the actual cost incurred more than standard cost. This is showing that they fail to manage their production either capability of the machine or weakness of management itself. 2) Bargain of buyer Regarding to theory 5 Porter Forces, their purchaser has power of deciding the price. When we looking at the information, Luotang depend more on HPPC as a buyer.So this made difficulties to Luotang to decide their own price although they have an efficiency in production. 3) Bargain of supplier As we know, supplier as the important agent to determine whether our company successful or not, because we rely on their capabilities to supply us with quality raw materials and reasonable price, also willing to provide us when we need. In this case, Luotang depend on Pingd ingshan and recently reported that coal quality had deteriorated about 3 % from the expected quality. CONCLUSION Luotang Power Company is an international power developers to finance, design, construct and operate coal-fired power plant.However due to the nature of our business, we have a speculative problem about our supplier that have gotten changed on 2011. The supplier has supplied low quality coal to Luotang and that disturbs the progress of the production. That has caused decreases demand from a loyal customer. And its travel the financial situation of the company. Besides that, several recommendations should be taken to find out a successful implementation of the system in our company. First of all, purchasing department may also be held responsible for purchasing materials that can define the quality of the material.Besides that, Luotang also change the term of contract with the supplier, need to find other clients not to depend to HPPC, Luotang also should do fuel divers ification to make sure there are several suppliers, and Luotang can minimize their cost of handling the management of their plant in a very strategic way so that they can improve their management well. In addition, what we have found by concept 5 Forces in this company that their faces during their production. There are Luotang not have efficiency in producing electricity because cost for fixed expenses in the year 2011 are increasing.Besides that, bargain of buyer that show their purchaser have power in deciding the price. And lastly, bargain of supplier that show there is a supplier that supply the raw material to Luotang. As a conclusion in overall, we can see that Luotang Power Company has a good performance in their production but it have decreased in year 2011 because there are several problems that unexpected, that come from the supplier and others. So that, Luotang should do in several ways to overcome the problem and prove it to the Boar of Directors.