Parameter prediction error-randomness of operating process, Managerial Accounting

Assignment Help:

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.


Related Discussions:- Parameter prediction error-randomness of operating process

Determine current budgets, Explain Current budgets Current budgets: the...

Explain Current budgets Current budgets: the period of current begets is generally of months and weeks. These budget relate to the current activities of the business. According

Controlling material flow , Controlling material flow Figure below out...

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

Decision making, A local government authority owns and operates a leisure c...

A local government authority owns and operates a leisure centre with numerous sporting facilities, residential accommodation, a cafeteria and a sports shop. The summer season lasts

Steps making decisiontree, Steps making DecisionTree A decision tree is...

Steps making DecisionTree A decision tree is a graphical representation of decision process indicating decision alternatives, states of nature, related probabilities and condit

Permanent abandonment of premises, PERMANENT ABANDONMENT OF PREMISES A ...

PERMANENT ABANDONMENT OF PREMISES A company may find it more profitable to concentrate its output in some factories by closing down others.  The decision, in this instance, is

Commercial paper, The CP introduced in the Indian financial market, for the...

The CP introduced in the Indian financial market, for the recommendations of the Vaghul Committee has turn into a well-liked debt instrument of the corporate world. Commercial Pape

Explain about intra company transfer pricing, Intra company transfer pricin...

Intra company transfer pricing A company engaged in production may have several segments division or departments doing production jobs or manufacturing party or fully finished

Service time-probability distribution curve, Service time-probability distr...

Service time-probability distribution curve A common example is that service times follow an exponential probability distribution i.e. y=e -x Service channels - t

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