Variance Analysis: The Barnes Scuba Diving
Limitations of using variance analysis for performance evaluation
Variance analysis is the process of examining in detail each variance between actual and standard costs to determine the reasons why budgeted results were not met. Despite the advantages highlighted above, there are several limitations that may result in the use of variance analysis for performance evaluation.
I. The Barnes Scuba Diving business as a whole
The analysis of the results might be imprecise due to overlooking other vital tools that may be beneficial to the business. This may lead to inaccurate decisions and in turn may result in the fall of the business since the results used in the variances may be unreliable. Therefore, Barnes should avoid being dependent on one way.
In addition, there may be a tendency to meet the standards and in turn disregard other important objectives such as maintaining and improving quality, and customer satisfaction. In the case of Barnes, the business opted for a different printer to reduce costs and the quality was not satisfactory. This eventually led to the use of more direct materials than planned as shown that the average number of manuals used being 25% higher than standard. Thus, disregarding important objective caused a contradictory result as the direct material usage turned up to be unfavorable.
Furthermore, there is …show more content…
Unfavorable variance might not necessarily mean the inefficiency of the employees. With regard to bad weather, 14 courses had to be postponed and rescheduled. This resulted in more costs to be incurred and in turn, direct labor variance to be unfavorable. In this case, it does not reflect the performance of the employees accurately since it is not within the control of the employees. Other uncontrollable factors in Barnes are longer distance travelled due to construction works and higher petrol
Variance analysis is the process of examining in detail each variance between actual and standard costs to determine the reasons why budgeted results were not met. Despite the advantages highlighted above, there are several limitations that may result in the use of variance analysis for performance evaluation.
I. The Barnes Scuba Diving business as a whole
The analysis of the results might be imprecise due to overlooking other vital tools that may be beneficial to the business. This may lead to inaccurate decisions and in turn may result in the fall of the business since the results used in the variances may be unreliable. Therefore, Barnes should avoid being dependent on one way.
In addition, there may be a tendency to meet the standards and in turn disregard other important objectives such as maintaining and improving quality, and customer satisfaction. In the case of Barnes, the business opted for a different printer to reduce costs and the quality was not satisfactory. This eventually led to the use of more direct materials than planned as shown that the average number of manuals used being 25% higher than standard. Thus, disregarding important objective caused a contradictory result as the direct material usage turned up to be unfavorable.
Furthermore, there is …show more content…
Unfavorable variance might not necessarily mean the inefficiency of the employees. With regard to bad weather, 14 courses had to be postponed and rescheduled. This resulted in more costs to be incurred and in turn, direct labor variance to be unfavorable. In this case, it does not reflect the performance of the employees accurately since it is not within the control of the employees. Other uncontrollable factors in Barnes are longer distance travelled due to construction works and higher petrol