Considerations in variance investigation, Cost Accounting

Considerations in Variance Investigation

As already notice above, not all variances are investigated; this is only the material and meaningful as for cost control reasons variances that are investigated for further management action. However even as we go into investigating what caused a variance to happen, we need to consider the given factors as:

i. Materiality Management should describe the materiality level that when reached needs to be investigated. Each variance below the materiality level is not investigated.

ii. Sensitivity to Cash Flow: We required considering which variances translate into cash flow implications for example: price variances.  If a variance is extremely highly sensitive to cash flows, then we required to set a low materiality level while if a variance has extremely low sensitivity to cash flow, then we required setting a high materiality level.

iii. Frequency of Occurrence:  A variance that happens consistently or frequently requires to be investigated as early as possible.

iv. Control : we only need to hold managers accountable for the variances that they could control.  Variances caused via factors beyond the manager's control cannot be blamed on the manager, for example: external factors such as the government actions, inflation and unfavourable exchange rates could reasons adverse variances which the managers cannot be held responsible for.

v. Cost-Benefit Analysis:  If the cost of investigating a variance exceeds the benefits of that organization, then there is no requires of investigating the variance like it is a waste of resources. The reverse is correct.

vi. The management Style: In an autocratically managed organization every variances are investigated like actions are not expected to deviate from the stipulated. In a democratically managed organization, merely the material variances would be investigated.

Posted Date: 2/7/2013 7:44:51 AM | Location : United States







Related Discussions:- Considerations in variance investigation, Assignment Help, Ask Question on Considerations in variance investigation, Get Answer, Expert's Help, Considerations in variance investigation Discussions

Write discussion on Considerations in variance investigation
Your posts are moderated
Related Questions
EARNINGS AFTER TAX-1500000 NUMBER OF EQUITY SHARE OUTSTANDING-300000 DIVIDEND PAID 600000 PRICE-EARNING RATIO-101 RATE OF RETURN ON INVESTMENT-20% WHAT IS OPTIMUM DIVIDEND PAY OUT


Amy earns $35,000 working part time. Consequently, she is not eligible to participate in her employer's retirement plan or health insurance program. Amy's expenses are summarized a

Bases of Cost Classification These various bases of cost classification are summarized in the diagram underneath as: Here, we will usually refer to either of these ter

Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings (the corporation uses the nearest full


Vintage Auto Company manufactures parts to order for antique cars. Vintage Auto makes everything from fenders to engine blocks. Each customer order is treated as a job. Vintage Aut

You are assisting the accountant on the preparation of the final accounts of a business with a year-end of 31 December. A trial balance has been drawn up and a suspense account ope

difference between diffrential cost and marginal cost

Question 1 Discuss the various elements of cost Question 2 Explain the various stages involved in the distribution of factory overheads Question 3 Define activity-based