MCS 10th Session

8/12/2019 MCS 10th Session

http://slidepdf.com/reader/full/mcs-10th-session 1/11





Reward

Yes

measurements

revised revised actual No

vs plan feedback/communication

Goals &strategies

StrategicPlanning

ResponsibilityCenter

performance

Rules

ReportActual vs

plan

Performancesatisfactory

Otherinformation

Budgeting



Variances Analysis

disaggregationTotal variance

Nonmanufacturing

Manufacturing cost Sales

Adm Marketing R &DVariable

costFixedCost Volume Price

Directlabor

VariableOHMaterial

Marketshare

Industryvolume



The analytical framework to conductvariance analysis :

› Identify the key causal factors that affect profits,

› Break down the overall profit variances by thesekey causal factors,

› Try to calculate the specific, separable impactof each causal factor by varying only thatfactor.



RevenueVariances

Selling priceVariance

Mix andVolume

variance

Mix

Variance

Volumevariance

Marketshare

Industryvolume



ExpenseVariances

Fixed CostVariances

Variable CostVariances

Adjustmentvolume ofproduction





Full-cost systems

› Fixed and variable overhead cost included in

inventory,› Production vs Sales volume,

› Level of inventory

Amount in detail Engineered and Discretionary Costs

› Favorable in engineered cost is usually an indicationgood performance.

› The performance of discretionary expense center judged to be satisfactory if actual expense equal thebudgeted.



Limitations of Variances Analysis :

› It does not tell why the variance occured.

› To decide whether a variance is significant,› Performance reports become more highly

aggregated, offsetting variances might mislead thereader.

› The reports show only what has happened , do notshow the future effects of actions that manager hastaken.

Formal reports are worthless unless they lead toaction.



Documents

MCS 10th Session