Question

Think of a business in the Service Industry: hotels, restaurants, personal services like hair dressers, accounants, lawyers, landscapers, contrsctors, etc..

- Describe the Service Business you are thinking of.

- Could they use variance analysis?

-In what wy couldthey use the techniques of Variance Analysis?

-What management advantage would they get from any analysis?

-If you feel they could not benefit from variance analysis - explain why you feel that way.

Answer 1

-The business I have thought of is a fast food restaurant making made to order dishes located in the prime location of the city.

-They could use a variance analysis as a standard cost card for each dish to be prepared shall be made.

-Variance analysis is a comparison with the standard cost. Thus, the techniques of variance analysis can be used to find out any excessive cost or cost savings while preparing the dishes.

-Management will get to know which cost area should be focused on and if there is a cost saving they could look into the reason behind the same and implement it in other areas.

-I do not feel thatt no benefit will be there from the variance analysis as it is a useful exercise.