ACC 312 Midterm: The reasons for variances
Document Summary
The comparison of actual costs and revenues with budget is normally regularly reported to management (daily, weekly or monthly) and presented in what is called an operating statement. The operating statement is usually supported by a report explaining the reasons why specific variances have occurred. Variances between actual and standard performance may be investigated to explain the reasons for the differences through completion of a complete analysis of all variances, or alternatively through the use of exception reporting that highlights only significant variances. Although not an exhaustive list of possible causes, the following provides the reasons for most of the common variances encountered in most manufacturing and service businesses: Direct material price: skills of purchasing department, quality of inflation, supplier discounts, foreign currency materials, price exchange rate fluctuations, invoicing errors. Direct material usage: quality of materials, labour efficiency, pilfering, stock control, quality control. Direct labour rate: use of higher or lower skilled labour than planned, wage inflation, or union agreement.