Question

Pick a specific company and discuss in which variances you believe are the most important ones. You may focus on the cost variances, or variances between budgeted and actual sales revenue or budgeted and actual cash in/outflows. Please share why you feel this variances is of crucial importance and how often you believe a manager should look at the reports (e.g. daily, weekly, monthly, quarterly).

Answer 1

Variance analysis is an analysis of the difference between planned and actual numbers. For each individual item, companies assess its favorability by comparing actual costs and standard costs in the industry.

Variances are computed for both the price and quantity of materials, labour, and variable overhead, and are reported to management. However, not all variances are important. Management should only pay attention to those that are unusual or particularly significant.

Cost variances are most crucial for a company as management of cost as per standards sert without compromising on quality is very important for long term survival of company.

A manager should look at reports on daily basis so that variances can be identified on spontaneous basis and corrections or improvements towards achieving the desired target can be fulfilled and that too without wastage of time and resources.