Question

In 200 words or more, How often should variances be reported to management? What principle may be used with variance reports?

Answer 1

Variance should be reported To appropriate level of management.

Generally variance reported at end of each period. But for instant correction purpose, reporting of this variance as soon as possible for correcting measure.

Standard costing useful for compare actual cost with benchmarking (standard cost) and identify reason for unfavorable variance in depth. So for future effective and efficient used of resource of company like material, labor, machine is possible.

Sorter period of reporting variance is better for correction of actions.

All variance should be reported to appropriate level of management (level that correction action and decision should be taken for variance) as soon as possible to appropriate management. The principle of "management by exception" may be used with variance reports.

Important components of management by exception are variance analysis and performance reports.

Principle of management by exception means manager's attention should be direct toward those parts of company performance where plans of managers are not working out for reason.

Top management only takes action on Significant variance only. Otherwise responsible department look into variance and investigate this variance for correction purpose.

For example, unfavorable material price variance arises then Purchasing department responsible for this variance. And manager should take instant step toward improve variance.

For example, unfavorable material quantity variance arise then Production department responsible for this variance. And manager should take instant step toward improve variance.

For example, unfavorable labor cost variance arise then Human resource department responsible for this variance. And manager should take instant step toward improve variance.

For example, unfavorable sales price variance arise then top management responsible for this variance because setting of price of product by top management. And manager should take instant step toward improve variance.

For example, unfavorable sales quantity variance arise then marketing department responsible for this variance And manager should take instant step toward improve variance.