Discussion:
(Behavioural Implications of Variances) Dhariwal Industries is currently reviewing its variance analysis process. Over the years, the company has used variance analysis to help control and manage costs and activities within the company. Suzi Sanchez, the management accountant at Dhariwal, has been feeling a bit unsure of the accuracy of the variances that are being reported each year. Since managers in both sales and production are paid bonuses based on their ability to control and report positive variances, she is suspicious that there may be errors in the budgeting process. The following is a summary of the variances reported for the last four years:
|
2009S
|
2010$
|
2011$
|
2012$
|
|
Total sales variance
|
$3,000 F
|
$2,000 F
|
$3,700 F
|
$4,200 F
|
|
Sales price variance
|
1,000 U
|
500U
|
1,800F
|
1,400U
|
|
Sales quantity variance
|
4,000 F
|
2,500 F
|
5,500 U
|
5,600 F
|
|
Total materials variance
|
400 F
|
1,200F
|
900F
|
1,700F
|
|
Materials price variance
|
800 U
|
200U
|
700U
|
500U
|
|
Materials efficiency variance
|
1,200 F
|
1,400 F
|
1,600 F
|
2,200 F
|
|
Total labour variance
|
1,000 F
|
1,300F
|
2,000F
|
1,700F
|
|
Labour rate variance
|
200 U
|
500U
|
300U
|
400U
|
|
Labour efficiency variance
|
1,200 F
|
1,800F
|
2,300F
|
2,100 F
|
1. What trends in the above data indicate that there could be false information in the budgets for Dhariwal?
2. How could Dhariwal control manipulation of budgets to ensure that the variances reported are meaningful?