Considerations in variance investigation, Cost Accounting

Assignment Help:

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.


Related Discussions:- Considerations in variance investigation

You should be willing to pay the worker , You are the manager of a firm tha...

You are the manager of a firm that sells output at a price of $40 per unit. You are interested in hiring a new worker who will increase your firm's output by 2,000 units per year.

Business and the generation of accounting standards, This time of year we a...

This time of year we all here about football. For me it is the bad news of how poorly the Buffalo Bills are performing. Hopefully your favorite team is doing well. One thing we

Costing term, The San Carlos Company is an electronics business with eight ...

The San Carlos Company is an electronics business with eight product lines. Income data for one of the products (XT-107) for June 2011 are as follows: Revenues, 200,000 units at av

Last in first out or lifo, Last in first out or LIFO LIFO is based upo...

Last in first out or LIFO LIFO is based upon the assumption such the stock purchased last is issued first. Stock valuation should here be based upon the prices ruling on acqui

Determine the price of the bond , Andrew Industries is contemplating issuin...

Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from

Draw a payoff diagram, Currently the stock of Backstreet Toys (BT) is selli...

Currently the stock of Backstreet Toys (BT) is selling for $20 per share and the risk free rate is5%. a) Draw a payoff diagram for each of the following 3 portfolios: i. Buy

Overhead cost, what is overhead cost classfication of cost overhead

what is overhead cost classfication of cost overhead

Calculate the payback period and accounting rate of return, Freshly Ground ...

Freshly Ground Investments have just made an investment of $550 000 in a new Toyota Hilux (with trailer) delivery vehicle. This vehicle will be used for deliveries and generate rev

Activity Based Costing, How do I figure the estimated activity and estimate...

How do I figure the estimated activity and estimated allocation base?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd