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vatiance analysis, merits and errors in variance analysis

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How do you think you could take variance information and find that some error in calculations have been made....any ideas?

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Solution Summary

Meaning of Variance analysis, benefits of variance analysis, errors in setting up the standard

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Variance analysis provide information on the difference between standard and actual thereby it helps the management to remove the unfavourable variance and to achieve the target. The main purpose behind the variance analysis is to help the management to strive for continuous improvement in the performance of the undertaking.

Advantages of variance analysis:

1.Variance analysis helps us to know the cost of direct material, direct lablour and fixed overhead in advance.

2.It provides goal to the managers and Chief Executive officer.

3.It helps in budgeting.

4.It is the very good method of analysing the performance

5.In variance analysis, actual costs are measured against standard on monthly basis.

6.It is helpful in preparing flexible budgeting.

In spite of having so many advantages, sometimes variance information might lead to wrong coclusion/decision because of the error in calculation of variance.

The error in calculation of variance is due to

1. Error in ...

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