Question

What factors should be considered when investigating variances?

Answer 1

These are the factors that need to be considered while investigating variances-:

(i) Figures reliability -: Figures used in the computation should be accurate. Incorrect figures might lead to wrong decision making

(ii) Materiality -: The variances must be material enough to investigate the reasons. If the variance is not material there is no need to investigate.

(iii) Dependence of one variance with another variances -: Many times it is seen that one variance is depended upon the another variance. For examples -: Low price per unit of direct material is favorable material price variance, but this may lead to unfavorable labor hours. Because it may be difficult for the labor to work with low quality of materials.

(iv) Favorable or Unfavorable -: It is obvious that before investigating first we should ascertain the nature of variances. Each type of variances has different consequences.

(v) Trends -: The trend of the variance should also be analyses that whether the variance is one of a time or on a recurring nature.

(vi) Cost vs expected benefit analysis -: Before analyzing the variances, it must be remembered that expected benefit should be more than the cost of time and effort incurred.

(vii) Controllability-: If the variance is controllable, then only we should investigate. Otherwise there is no point in analyzing it since it will result in wastage of time and effort.