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Unformatted text preview: CMA1 - ACCT2160 - SUPPLEMENTARY NOTES RE CHAPTER 10 Investigation of Variances The most important tasks in variance analysis are to understand why the variances arise and then use this knowledge to make improvements ----not to fix blame. Variances should be investigated when the benefits of following up the variance exceeds the cost of follow-up. A variance may result from either a random occurrence (which is not subject to managements control), or a controllable occurrence. No follow up is required for the non- controllable random occurrence but is for the controllable type of occurrence. Statistical methods can be used to help distinguish between the two types of occurrences (e.g., all variances greater than 1 std. deviation may be regarded as controllable). The higher the statistical limit for follow up (in terms of std. deviations from the mean), the lower the number of occurrences that will be followed up, but the higher the probability that a controllable problem will be overlooked. but the higher the probability that a controllable problem will be overlooked....
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- Winter '12