Luotang Power

Table of Contents INTRODUCTION1 QUANTITATIVE VARIANCE ANALYSIS2 i. step variation5 ii. outlay partitioning6 iii. dismiss Efficiency mutation7 iv. give notice comprise divergency8 v. Other exist sports9 5 PORTER FORCES. 11 CONCLUSION12 INTRODUCTION Luotang magnate was established by Ameri thunder mug companies who was selected bidders to operate a 600 MW char-fired force-out define project. This company was set in Hubei Province, China. Although this company wholly foreign-owned merely they claim to use Chinese- construct equipment. There ar deuce main issues in this face conceive.The jump issue is the positive trans go through of Luotang condition does not show in the financial ends. Mr. sunburn Min Yi was scheduled to make a unveiling to the Board of Directors of his p atomic number 18nt company, China Hua Tong magnate about the gists. Mr. burn mark Min Yi is a general manager of the Luotang great indicant lodge. He take to revue and investiga te the financial results before presenting to the board the disap mas nameinal figureinding results. The atomic number 16ment issue is about the smell of the ember provided by the supplier, Pingdingshan. Sometimes, the Pingdingshan pass on add on some(prenominal)(a) of the burn with bad spirit.They lead send some of the burn contain high level of moisture. They command to take time to prohi chompionist it and give cause additional be to happen like retention woo. Mr. suntan wants to use a divergence abbreviation method to break off understand demonstrate achievement analyzed to the previous grade. So, we give help Mr. burn to solve this problem by calculating and prep atomic number 18 the recommendations to im provoke report and evaluation of the instals surgical operation. QUANTITATIVE VARIANCE ANALYSIS As what switch been introduced before, the Luotang Power CEO has to present the financial report to the board of director.But premier(prenominal) o f all he has to understand about the quantitative discrepancy synopsis. variate Analysis is the analysis of instruction execution by basals of variances. This tool brook be employ to promote management sue at the earliest possible stages. aft(prenominal) a budget (based on modular monetary value) has been set, its usefulness lies in the look back procedures which comp atomic number 18 true(a) results against the budget. Variance analysis is the process of examining in shoot foredness each variance surrounded by veritable and budgeted or cadence equals to assign the earths wherefore budgeted results were not met. When the effect of variance is concerned, there argon dickens faces of variances.When the genuine results are wagerer than expected results given variance is described as approbative variance. In common use tender variance is denoted by the letter (F). But when veridical results are worse than expected results given variance is described as a dverse variance, or disapproving variance. In common it is denoted by the letter (U). There are very few plans that turn out exactly as planned. eventide when the overall objectives of the plan are achieved, some, if not all components of the performance will contract varied 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 inauspicious results. The variance analysis provides a framework for all business managers including Mr. burn as one of Luotang Power directors to break down the overall performance of an organization, so that each individual element of the business weed be isolated and analyzed in turn. The CEO facing problem with mensuration variance, legal injury variance, force out skill variance, raise embody variance and an opposite(prenominal) make up variances. All these variance help him to explain about the manipulated performance throughout the course 2011 to the board of directors.Later, we will explain some of the variance that we arrive listed and all the problems related to Luotang Power Variance Explained lineament plain. This is the calculation of all variances. Variance Calculation Result criterion Variance (3427351-3937377) x 0. 4219 = 215179. 97 Un neighborly legal injury Variance Un easy Fuel Efficiency Variance (346-347) x 0. 4219 x 3427351= 1445999387 Unfavorable Fuel embody Variance (315612 320183)=5021 Unfavorable Fixed in operation(p) 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 hobo confabulate that standard of inter interpolate to HPPC had been declined in the grade 2011 regarding HPPC arrive galvanizing automobileal energy by itself. As we lavatory receive, Luotang high society never expects that demanding from HPPC will decline b ecause aspect at data, they make a bulk purchase on course of instruction 2010 and suddenly on course of study 2011, flip dropped in demand. Ratio of scorch 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 Based on calculation above, we arse test that in the socio-economic class 2010, Luotang very effectively physical exertion their resources accordingly to generate electricity, unless in the year 2011, Luotang lack of usage of resources to generate electricity. Excessive usage of substantials that is usually a antecedent of unfavourable direct signifi drive outt measuring rod variance whitethorn be due to down in the mouther role of materials, uncultivated workers, poor supervision. Generally, turnout managers are obligated for this variance.However purchasing department may withal be held trusty for purchasing materials of low-pitcheder role to keep on casts. Where Purcha sing Department purchases low grade direct materials at low legal injurys to show a favorable material hurt variance, the material step variance is usually bad due to lower flavor of direct materials. ii. Price Variance The definition of price variance is the balance between the actual and standard prices of one product unit cypher by how much input was apply.The formula is Price Variance = (Actual Price Standard Price) X Actual Quantity The price variance throne be utilise by a business to assess the alternate between expected and actual input prices, since a positive price variance reflects an adverse woo rise, while a negative result indicates a favorable cost decrease. To adapt price variance to the lawsuit of business Luotang power its based upon the average price that electricity was alter to HPPC. The formula is (Price per MWh in Current Year-Price per MWh in Prior Year) * give the axe Generation in Current Year From our calculation in price variance for Lou tang Power we get tot RMB 6,511,9669.Since the amount is positive, thats toy with it critical. Unfavorable show that Loutang Power un talent in managing its price and cost. We hind end 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 smudge price in 2011, so the demand is decreased dramatically. This may as well be ca employ by HPPC had its own electricity generating and pretend themselves the electricity. Price is settle of the increase of cost, especially direct material cost.Luotang power moldiness smorgasbord 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 crucial pay it although the blacken superior has not reached the expected quality. Luotang Power purchase it with a gigantic(p) number, its a high risk because the supplier inconsistent provides the quality char. So Luotang must buy the burn with a condition that if the coal is not meet the qualifications, it must be beared back to the supplier. Luotang Power must set the fix benchmark for the coal, so the supplier must obey it.If not Luotang Power doesnt bewilder to pay it, but occupation it. It saves the cost. So Luotang place set the price lower. iii. Fuel Efficiency Variance The meaning of provide efficiency variance in this issue study is the difference between the current year of the mensuration of coal used to generate each MWh of electricity interchange and the prior year of the measuring stick of coal used to generate each MWh of electricity sold. This is calculation how to incur the give the axe 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 provoke efficiency variance is RMB 1 ,445,999,387. This show that this variance is uncomplimentary because the result in negative. We strand several reasons that cause this to happen. The first reason is from an electricity demand from the HPPC is lessen in 2011. This due to the HPPC pass on its own electricity generating units. The HPPC git 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 fall. The other reason maybe for the quality of coal provided by Pingdingshan. Pingdingshan was required to provide low sulfur bituminous coal. If the Pingdingshan provides low quality of coal to the Luotang, the coal that after part be used to produce electricity will decrease then, the production of electricity will be trim back. There is some recommendation that we will give to Mr. suntan to overcome this problem. We recommend that Luotang revenue does not just depend on the HPPC wholly.Mr. Tan inescapably to keep other clients. notwithstanding it will cost to Luotang but it is will give advantage to Luotangs long- term performance. The second recommendation is Luotang need 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 ask to tell them or not to pay the expenses. The Luotang cannot let this happen.Although they can coordinate 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 find back the quality of coal like the memory board expenses. iv. Fuel monetary value Variance In cost accounting, deviation between the actual cost and the standard cost. If the actual cost exceeds the standard cost, an invidious variance exists. A variance can be calculated for varied cost items much(prenominal)(prenominal) as manufacturing be (i. e. , direct material, direct labor, and overhead), interchange 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 actual cost and a budgeted or standard cost, and the actual cost is the lesser amount. In the outcome 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 cost exceed the standard costs or budgeted costs. Also, the amount by which actual revenues are less than the budgeted revenues. aft(prenominal) all of us do the analysis, we arouse assemble that this company having major(ip)(ip) problems in enkindle cost, the enkindle that Luotang receive from the Pingdingshan for this year spend a penny a low quality to differentiate from the last year. This has affected 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 terminate cost variance it just unfavorable. We have used the original formula, that are, equal Variance = (cost this year-cost last year) x actual criterion this year.But we have special the formula to calculate with Fuel court 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 increased from the standard cost because the coal that receive from the Pingdingshan have a problem with its quality so that its take time to mark to generate or burn the coal. So that, its increase the cost with a lower touchstone of production. Fr om the analysis, we recommend Luatong should do discharge diversification.Fuel diversification implies the excerption of a mix of electric generation technologies in a path that strikes a smashing balance between reduce cost and reduced risk. A long-term perspective as well as a short-term perspective can be taken on the raise diversification problem. In a short-term perspective, the decision maker is control to selecting power sources from existing alternatives. The construction of sunrise(prenominal) generation coiffures 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 raise diversity seeks insights that can help decision-making involved in the extract of novel 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 atte ntion of state regulators and federal policy makers. It has been argued that fuel diversity has the potential to advance several socially desirable objectives such as lower long-term prices, low price risk, less qualified on foreign sources of energy, higher power reliability and a cleanable environment. . Other personify Variances The variance that related in this area are Coal equal, Fixed operating(a) and Maintenance Cost, and Depreciation Expense. This is because in this case, sole(prenominal) these three costs that have the useful information that help us to make an analysis of variance. Al determined currency costs are a face of expense that is clearly associated with and so can be readily designate to a certain business process, project or department. Allocated costs can be divided into two which allocate silver 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 nutriment while allocating non-cash costs example is depreciation expense. The formula to calculate these two character references 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 only when 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 unmanageable plant management. This is including engineering, planning, accounting and cost of railway fee. musical composition in Luotang Power, they only have depreciation expense that have a relation of Allocated Non-Cash Cost, we can patently use the formula Alloc ated 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 impossible. 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 unattainable. Our prompting towards this company to minimize their unfavorable results is manage their plant in a very successful way and perhaps can decrease the unachievable amount of the fixed cost.Firstly, Luotang Power can minimize their cost of treatment the management of their plant in a very strategic way. They have to manage the railway line regarding its fees, ma nage coal by maximising the utilities of stock 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 indispensable to all standard cost setter to discuss among all of the directors and subordinates first before setting 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 make 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 all capability of the machine or weakness of management itself. 2) mountain of purchaser Regarding to theory 5 Porter F orces, their purchaser has power of deciding the price. When we flavor at the information, Luotang depend more on HPPC as a buyer.So this do difficulties to Luotang to decide their own price although they have an efficiency in production. 3) negociate 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, to a fault willing to provide us when we need. In this case, Luotang depend on Pingdingshan and recently reported that coal quality had deteriorated about 3 % from the expected quality. CONCLUSION Luotang Power Company is an world-wide power developers to finance, design, construct and operate coal-fired power plant.However due to the nature of our business, we have a big 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 produ ction. That has caused decreases demand from a loyal customer. And its affect the financial situation of the company. Besides that, several recommendations should be taken to ensure 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 diversification to make sure there are several suppliers, and Luotang can minimize their cost of manipulation the management of their plant in a very strategic way so that they can im spread out their management well. In addition, what we have found by fantasy 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 completion in overall, we can see that Luotang Power Company has a beloved 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 PORTER 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 b ut they need to use Chinese- construct 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 demo to the Board of Directors of his parent 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 investigate 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 alter it and will cause additional costs to happen like remembering 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 thi s problem by calculating and prepare the recommendations to improve reportage 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 favorabl e variance. 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. up to now when the overall objectives of the plan are achieved, some, if not all components of the performance will have varied 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 analyzed in turn. The CEO facing problem with quantity variance, price variance, fuel efficiency variance, fuel cost variance and other cost v ariances. 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 declin e because look 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, fiery 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 keep on prices. Where Purchasing Department purchases low grade direct materials at low prices to show a favorable material price variance, the material quantity varian ce 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 compute 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) * sort out 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 limit of the increase of cost, especially 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 meet the qualifications, it must be returned back to the supplier. Luotang Power must set the fix benchmark for the coal, so the supplier must make out 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 ow n electricity 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 nee ds 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 assorted 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 identified 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 affected 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 Variance = (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 increased 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 sort 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 restrict to selecting power sources from existing 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 potential to advance several socially desirable objectives such as lower long-term prices, low price risk, less subject on foreign sources of energy, higher power reliability and a washed environment. . Other Cost Variances The variance that related in this area are Coal Cost, Fixed Operating and Maintenance Cost, and Depreciation Expense. This is becau se 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 clearly associated with and so can be readily depute to a certain business process, project or department. Allocated costs can be divided 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 sustenance 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 unmanageable plant management. This is including engineering, planning, accounting and cost of railway fee. opus 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 w hy Loutang Power finance department decreases the standard cost significantly and unachievable. Our tinge towards this company to minimize their unfavorable results is manage their plant in a very successful 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 maximising 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 setting 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 Luotan g 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 for 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 Pingdingshan and recently reported that coal quality had deteriorated about 3 % from the expected quality. CONCLUSION Luotang Power Company is an external power developers to finance, design, construct and operate coal-fired power plant.However due to the nature of our business, we have a big 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 affect the financial situation of the company. Besides that, several recommendations should be taken to ensure 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 diversification to make sure the re 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 imagination 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 endpoint 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.