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    Why investigate both price (rate) and volume (efficiency)?

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    Why is it important to investigate both price (rate) and volume (efficiency) variances when rewarding employees for satisfactory work when performance evaluations are based on meeting budgets?

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    The reason is that the price/rate variances are caused by different people than the efficiency/volume variances. And so the employees who wish to meet their budget may inadvertently ruin another department budget, hurting the overall results for the firm.

    Let's walk through this. First, price and rate are incurred by the person who is doing the buying/hiring. They want to get the best price (to meet their budget). The efficiency and ...

    Solution Summary

    Your tutorial is 310 words (one page) and explains how the variances are related and why rewarding separate variances may lead to undesirable outcomes.