Corrective action on variance analysis, Financial Management

Assignment Help:

Corrective Action:

Once budget figures are compared with those actually achieved, and a variance analysis carried out, management can then take steps to correct any problems identified.  An organisation may put a procedure in place which stipulates that corrective action will only be initiated where a particular result falls outside a predetermined variation amount.

An example would be the situation where revenue does not meet budgeted figures. If an organisation's processes state that a variation of 5% on budgeted revenue is acceptable, and the variation is calculated to be -3%, then an organisation would not be required to review the revenue streams.  Of course, should the deficit fall outside these predetermined limits then an organisation would be compelled to take corrective action.

By predetermining ranges of variation where action will or won't be necessary, management will be freed to engage in more productive activities rather than worrying about every 1% variance from budgeted figures.

The predetermined ranges would have to be tailored to the specific needs of the organisation however, as a 5% variance in revenue may be totally acceptable to one organisation, while to another it could result in insolvency.

It is particular important that in project budgeting tolerances of variations be established and properly costed, as any increase in expenditure associated with the project not only has an impact on the viability of the project itself (when assessing return), but given expenditure usually comes from other areas of the business the increase cost will have an impact on those areas as well.


Related Discussions:- Corrective action on variance analysis

Show the transaction risk, Q. Show the Transaction risk? This is the ri...

Q. Show the Transaction risk? This is the risk occur on short-term foreign currency transactions that the actual income or cost may be different from the income or cost expecte

What do disclaimer of opinion, Disclaimer of Opinion - Statement by an AUDI...

Disclaimer of Opinion - Statement by an AUDITOR indicating inability to express an opinion on the fairness of FINANCIAL STATEMENTS provided and reason for the inability. The audito

Credit risk, A bond investor is always exposed to credit risk. Credit...

A bond investor is always exposed to credit risk. Credit risks can be classified into three types. They are: Default Risk Credit Spread Risk

Components of working capital, Examine the components of working capital & ...

Examine the components of working capital & also explain the concepts of working capital.

Futures contract, Futures Contract It is an obligation to purchase or s...

Futures Contract It is an obligation to purchase or sell an asset at an agreed-upon price on an exact future date. The buyer commits himself or herself to buy the asset, and th

Criticism of walter’s model, (i) No External Financing: - Walter' model pre...

(i) No External Financing: - Walter' model presume that the firm's investment are financed exclusively by retained earnings and no external financing is used. If it was therefore t

What do you mean by synergy, Q. What do you mean by synergy? Synergy: s...

Q. What do you mean by synergy? Synergy: synergy refers to the greater combined value of merged firms than the sum of the values of individual units. It is something like one p

Stock valuation, I just purchased a stock that would pay the dividends of t...

I just purchased a stock that would pay the dividends of the first four years as D1 = $0.65, D2 = $0.74, D3 = $0.79, D4 = $0.84. I also told that the dividends would grow continual

Calculate the investment in a project, BAGS, Inc. is considering an investm...

BAGS, Inc. is considering an investment in a new project. The required investment is $1,000,000. After-tax net cash flows are expected to be $50,000 the first year and are expected

Divisional performance evaluation, In modern strategic management accountin...

In modern strategic management accounting it is important to use appropriate performance measurements and control concepts, underpinned by theories and models applied in a variety

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd