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

Calculate the cash value financing interest rate , Calculate the today's ca...

Calculate the today's cash value of a car that can be leased with $5000 down, bi-weekly payments of $199 over 4 years and a buy-back value of $15,000 at the end of the lease if the

Support department allocation, how do you allocate the support department c...

how do you allocate the support department costs to production departments using the direct method when given percentages

Managerial accounting, Classic Coolers manufactures portable coolers adorne...

Classic Coolers manufactures portable coolers adorned with college logos. During the first quarter of the year, the company had the following costs: Direct materials used $55,500 D

Determine the current ratio, When firms enter into loan agreements with the...

When firms enter into loan agreements with their bank it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is imp

Compute variances for variable costs and fixed costs, The Houston Chamber O...

The Houston Chamber Orchestra presents a series of concerts throughout the year. Budgeted fixed costs total $300,000 for the concert season; variable costs are expected to average

Analyzing direct material costs, You are reviewing a cost proposal, which i...

You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the proposal, you note that there are 500 material items, but y

Calculate the inventory turnover ratio, The following information is availa...

The following information is available for the automotive division of Ford Motor Company for 2009.  The company uses the LIFO inventory method.

Internal rate of return, With the internal rate of return, how can a compan...

With the internal rate of return, how can a company use the ROI methodology as a realistic measurement? Please discuss the pros & cons of each measurement statistic.

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