Question

Variance analysis is used as a tool to evaluate performance. Consider your professional experiences as well as your review of the Required and/or Optional Resources and determine what type of variances might be the most alarming to see. If cost variance is high, is that an indication of a priority for a firm? Provide an instance in which favorable variances are just as important to understand as unfavorable variances. What type of inventory control considerations do you think are occurring with the use of variance analysis?

Answer 1

Answer)

Continuous unfavorable variance in variable costs even after adjusting the standard variable costs several times on basis of changes in market situation,continuos low actual production than budgeted and so on may be considered as alarming variances.

Not every time high cost variation may be a priority.First of all the firm must check why it happened and any satisfying reasons like price hikes of raw material etc must be considered and standard costs are adjusted accordingly.If there is no valid reason than the firm must consider it as priority to reduce the cost variance.

Favorable variances are just as important to consider as not very time a favorable variance indicate a favour.Sometimes the variance may be favorable but may not as good in previous year even if the market situation is same or favorable side of the firm etc.

Many inventory control considerations are occuring like to decrease cost variance many organisations are following inventory systems like just in time to reduce carrying costs. They are trying to maximise profit by using low inventory for reducing wastage and producing favorable variance in material variance and trying to find more new techniques Quinn the help of variance analysing.