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

Determine the earnings per share, Goodshape Company has currently, an ordin...

Goodshape Company has currently, an ordinary share capital of Rs. 2.5 million, consisting of 25,000 shares of Rs. 100 each. The management is planning to raise another Rs. 2 milli

Calculate weighted average cost of capital, Ocean Blue Vessels Ltd is a rea...

Ocean Blue Vessels Ltd is a real Liner firm whose capital structure consists of debt, preference shares and equity shares. The company plans to raise further capital for its expans

Determine the motivation foreign firm - high - tech u.s firm, Currently, ma...

Currently, many foreign firms from both developed and developing countries obtained high-tech U.S. firms. What might have motivated these firms to obtain U.S. firms? Answer: Se

Determine the concept of measuring the rate of return, Determine the concep...

Determine the concept of Measuring the Rate of Return The rate of return is total return the investor receives during holding period (the period when security is owned or held

Ratio calculations from financial statements, Ricardo Martinez has prepared...

Ricardo Martinez has prepared the following financial statement projections as part of his business plan for starting the Martinez Products Corporation.  The venture is to manufact

Bonds with warrants, Bonds with Warrants: Warrants are usually attached...

Bonds with Warrants: Warrants are usually attached with the bonds or preference shares to attract the investor. The objective is to induce the potential investors to subscribe

Value of conversion benefits, Value of Conversion Benefits: Having seen...

Value of Conversion Benefits: Having seen the measure used to analyze the convertible bonds, let us now examine the merits and demerits of convertible bonds and why or why not

Important areas of personal financial management, Gary and Joyce Yau, both ...

Gary and Joyce Yau, both 30, last month bought their dream house in London, Ontario. The purchase price was $450,000 plus addition fees such as taxes, legal fees, administration fe

Sensitivity analysis, Sensitivity Analysis A test of an organizations p...

Sensitivity Analysis A test of an organizations performance projections based on varying the key assumptions which is used for forecast performance.

Accounting standards, Accounting Standards The paradigm shift in the e...

Accounting Standards The paradigm shift in the economic environment during last few years has led to increasing attention being devoted to accounting standards as a means towa

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