Parameter prediction error-randomness of operating process, Managerial Accounting

Parameter prediction error:

This is another aspect of faulty planning. As Hongren says, ‘planning decisions are based on predictions of future costs, future selling price, future demands and so on. In many cases there will be a difference between the actual value and the predicted value’. Such differences are not only due to uncertainty about the future: the predictions may not have taken proper accounts of conditions existing at the time when it was made, like a recently agreed pay rise, or an agreement to increase wages in three months time.

Inappropriate decision models:

Variance can arise when chosen decision model fails to capture important aspects affecting the decision. The solution to a linear programming model can be used when setting standards for direct material purchase prices. These standards, however, may be inappropriate if the LP solution is not feasible because the LP models fail to recognize a constraint on labor availability or storage capacity’. (It is the relationship between the variables that causes the problem here, not the failure to predict accurately.)

Randomness of operating processes:

A standard is an average figure: really it represents the mid-point of a range of possible values and therefore individual measurements taken at specific times will deviate unpredictably within this predicable range.

Posted Date: 12/8/2012 2:44:14 AM | Location : United States







Related Discussions:- Parameter prediction error-randomness of operating process, Assignment Help, Ask Question on Parameter prediction error-randomness of operating process, Get Answer, Expert's Help, Parameter prediction error-randomness of operating process Discussions

Write discussion on Parameter prediction error-randomness of operating process
Your posts are moderated
Related Questions
How to write introduction on strategy plan

The collection policy of a firm is intend at timely collection of overdue amount and comprises of the subsequent. a.      Monitoring the state of debtors (account receivable)

Determine Cost pool and Cost drivers Cost pool: it is another name given to a cost centre and,  therefore an activity cost centre may also be termed as an activity cost pool.


I don''t know how to do a variable income statement. Here is my assignment: The Used Books Company is a small online retailer operating out of a garage apartment. The owner buys


A firm requires continuously monitoring and controlling its receivables to make sure that the dues are paid on the due date and no dues stay outstanding for a long period of time.

LIMITATIONS OF ABC ANALYSIS However ABC analysis is a basic tool for exercising selective control over many inventory items, it does not, in its current form, allow precise con

What is Sunk cost A cost has been incurred in the past or sunk in the past and is not relevant to the particular decision making, is a sunk cost. If it is decided to replac

Controlling material flow Figure below outlines the progressive stages in purchasing, issuing and recording materials in a manufacturing concern. An efficient system of docume