Question

Identify and explain the 4 ways a company can choose to decide whether to investigate a variance.

Answer 1

There are various ways a company can choose to decide whether to investigate a variance or not:
1) Size/Materiality: The size of a variance i.e the difference between actual and budgeted helps us to decide whether
to investigate the variance or not. So the variance which are more and controllable should be investigated
2) Cost: The cost to investigate variance must be less than the benefits which we have correcting the
reason of the variance.
3) Adverse or favorable: Adverse variance are more important to investigate than the favorable varaince.
4) Trend in Variance/Past variance: when there are series of adverse variance than it triggers that the variance
must be investigated , as itr is getting out of control
Other ways include realiability of figures, interdependence of variances etc