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
using relevant examples discuss the meaning and scope of cost accounting

10% of the finished castings were to be defective in manufacture and were rectified by expenditure of additional works overhead charges to the extent of 20% on the proportionate di

a)     Company X is expected to maintain a constant 7% growth rate in their dividends, indefinitely. If the company has a dividend yield of 4%, what is the required return on their

PH plc operates a modern factory that changes chemicals into fertilizer. Due to the the demand for  its product  is  seasonal,  the  company expects  that  there will be an average

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

Materials Transaction i. Purchase of Materials on Credit ii. Return of Materials to Suppliers iii. Purchase of Materials in Cash. The above transactions affect both t

WORKED EXAMPLES OF EXPECTED CASH COLLECTIONS PATTERNS


Your client has asked you to provide guidance on the following potential accounting changes: (1) Change from straight-line method of depreciation to sum-of-the-years'-digits (2) Ch