Question

Should standards be used to identify who to blame for problems? Is it always ok to have a positive variance versus a negative variance? Explain your stance and give examples to support your position.

Answer 1

Yes, Standard used for the purpose of allocates responsibility of variance.

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.

If positive variance is ok, but Negative variance considered for take correction action for future.

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.

Unfavorable variance means negative variance.