All 38 Variance Analysis questions
More in Variance Analysis
What are the two components of the direct labor variance? How is the variable overhead variance analyzed? What are the sales variances (price and volume)? How do variances reconcile budgeted profit to actual profit (an operating statement)? What are the possible causes of an adverse material usage variance? What are the possible causes of an adverse labor efficiency variance? What are ideal, attainable, and basic standards? What is the sales mix variance? What is the sales quantity variance? What is the significance of controllable versus uncontrollable variances?
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Budgeting & Forecasting › Variance Analysis

How do you decide which variances to investigate?

Intermediate

Answer

Not all variances are worth investigating. Use criteria such as absolute size, percentage of budget, whether it's controllable, whether it's part of a trend, the cost/benefit of investigating, and statistical significance (e.g., beyond a control limit). Management by exception focuses effort on the significant, controllable variances.
Real-world example Only variances above 5% of budget and $10k are investigated, following a management-by-exception policy.

Common follow-ups: What is management by exception? | What criteria guide investigation?

The Budgeting Process Variance Analysis Variance Analysis
All 38 Variance Analysis questions