Peformance Analysis (1)

Question 1

What is variance analysis used for?

Answer 1

To analyse and evaluate past performance

Question 2

What may significant variances indicate?

Answer 2

That an aspect of performance is out of control and that measures should be taken to improve performance in the future

Question 3

What does the appropriate use of control information depend on? (budget targets)

Answer 3

Managers who set the budget or standards are often not managers who are then made responsible for achieving budget targets

Question 4

What does the appropriate use of control information depend on? (budget targets)

Answer 4

Goal of organisation as a whole may not coincide with personal aspirations of individual managers

Question 5

What does the appropriate use of control information depend on? (control applied)

Answer 5

Control is applied at different stages by different people

Question 6

How can budgets motivate and demotivate managers?

Answer 6

To achieve a high level of performance or they can demotivate managers depending on the difficulty level

Question 7

Where is a demotivating effect likely?

Answer 7

Where an ideal standard of performance is set as all efficiency variances will be adverse

A low standard of effciency as no sense of achievement

Question 8

Solution to individual aspirations might be much higher or much lower than the organisation’s aspirations?

Answer 8

Solution might have two budgets

Question 9

Two budgets (reasonable)

Answer 9

A budget for planning and decision-making based on reasonable expectations (expectations budget)

Question 10

Two budgets (motivational purposes)

Answer 10

A budget for motivational purposes, with more difficult targets of performance (aspirations budget)

Question 11

What is meant by an ideal standard?

Answer 11

Assumes highest possible level of achievement. Can be demotivating for managers responsible for performance

Question 12

What is meant by an attainable standard?

Answer 12

Standard cost that sets performance targets at a higher level than is currently being achieved yet is realistic

Question 13

What is meant by a current standard?

Answer 13

Standard is based on levels of performance that are currently being achieved. Provide no incentive but may prevent deterioration in performance

Question 14

What is meant by a basic standard?

Answer 14

An original standard unchanged over a long period of time. Used to measure trends and changes in performance standards over time

Question 15

What should reported variances prompt managers into?

Answer 15

Taking control action to improve performance

Question 16

Syccess of variance reporting system depends on (manager)

Answer 16

Manager who is considered responsible for variance should agree that variance cause is their responsibility.

Question 17

Syccess of variance reporting system depends on (fair)

Answer 17

Variance should be seaparated into a fair and realistic measure

Question 18

Syccess of variance reporting system depends on (incetives)

Answer 18

Manager should want to do something to deal with causes of variance/ Through incentives and motivation

Question 19

Syccess of variance reporting system depends on (timely)

Answer 19

Variance should be reported in a timely manner. Managers may be reluctant to investigate them “now” as variance will seem out of date

Question 20

Syccess of variance reporting system depends on (control culture)

Answer 20

Control culture within the organisation may also affect the response of managers to variances

Question 21

Issues with a blame culture?

Answer 21

Managers will be blamed for adverse variances and be accused of poor performance

Question 22

Benefits of an improvement culture?

Answer 22

Managers are not blamed for adverse variances, encouraged instead as variances are considered as useful indicators for control action and improving performance