Frequency of performance reporting
Response to the following problem:
If a company uses a standard cost system, should all variances be calculated with the same frequency (e.g., monthly) and should they always be expressed in dollar amounts? Explain your answer and include in it the reason for calculating variances.
Rank the importance of eight variances
Assume that you are the production manager of a small branch plant of a large manufacturing firm. The central accounting control department sends you monthly performance reports showing the flexed budget amount, actual cost and variances for raw materials, direct labor, variable overhead (which is expressed on a direct labor hour basis), and fixed overhead. The variable cost budget variances are separated into quantity and cost per unit of input variances, and the fixed overhead budget and volume variances are shown. All variances are expressed in dollars.
Required:
a. Rank the eight variances in descending order of their usefulness to you for planning and controlling purposes. Explain your ranking.
b. Given the usefulness ranking in part a , explain how the frequency of reporting and the units in which each variance is reported might make the performance reports more useful.