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 working capital cycle, Working capital cycle (operating/tradi...

Working capital cycle (operating/trading/cash cycle) It is the time between paying for goods supplied and final receipt of cash from their sale. It is desirable to keep cycle a

Cash flow of reverse convertibles, (a) Let's presume that the firm may defa...

(a) Let's presume that the firm may default only on last coupon payment date and that when this take place stock price would be less than some predetermined price K at the expira

Compare the ifrs and gaap revenue recognition policies, SUPERVALU INC . ...

SUPERVALU INC . , a large US retail grocer, had $36.1 billion in sales for its fiscal year ended February 25, 2011. SUPERVALU currently reports using US GAAP. The controller of

How compound values can be calculated on anannual basis, How Compound value...

How Compound values can be calculated on anannual basis Compound values can be calculated on anannual basis, or on a half-yearly basis or on a monthly basis or on continuous ba

Explain restatement of investment appraisal, Restatement of investment appr...

Restatement of investment appraisal In the following solution the tax allowances in relation to the initial outlay on equipment are evaluated separately. Other approaches are a

How are the hibor, Q. How are the HIBOR, HSI and HSI futures related? T...

Q. How are the HIBOR, HSI and HSI futures related? The HIBOR and HSI are contrariwise related. So futures on HIBOR and HSI are as well inversely related. Display

Financial equivalent of the balance, The Federal Minister for the Environme...

The Federal Minister for the Environment is worried about the Greenhouse Effect, one outcome of which would be that Adelaide would have a subtropical climate by the year 2015. This

Short-term volatility position, (a) The position of an agency that sells a ...

(a) The position of an agency that sells a callable coupon bond. We supposed that coupon bond has a maturity of 3 years and is callable only at the second year. (b) The market t

Dividend yield plus growth in dividend process, Q. Dividend Yield plus Grow...

Q. Dividend Yield plus Growth in Dividend process? Dividend Yield plus Growth in Dividend process: - This process is used to compute the cost of equity capital when the dividen

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

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