Page 170 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

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Unit 8: Management Control through Variance Analysis

Unit 8: Management Control through Variance Analysis Notes

CONTENTS
Objectives
Introduction

8.1 Variance Analysis for Control Actions
8.1.1 Approaches
8.2 Analysis of Sales Variances

8.2.1 Sales Variance Method
8.2.2 Sales Mix Variance
8.2.3 Sales Quantity Variance
8.2.4 Profit or Sales Margin Method
8.3 Market Size and Market Share Variances

8.4 Summary of Variances
8.4.1 Limitations of Variance Analysis
8.5 Summary

8.6 Keywords
8.7 Review Questions
8.8 Further Readings

Objectives

After studying this unit, you will be able to:

 Discuss the variance analysis for control actions
 Explain the analysis of sales variances
 Describe the market size and market share variances

Introduction

Variance analysis is a part of the process of control and involves the calculation of variance and
the interpretation of results so as to localize the different factors that are responsible for the
variance. It leads us to ascertain the magnitude of each of the variances and the causes thereof so
that corrective action may be taken. Variance analysis helps the management in decision-making.
In addition (i) it is used in cost-control, (ii) gives early warning for corrective action and (iii) is
useful in accountability.

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