Article: The Relevance of Variance Analysis in Managerial Cost Control
Available at http://www.scienpress.com/Upload/JFIA/Vol%202_1_5.pdf
Summary of article
Businesses, both profit-oriented and non-profit, governments, different groups and individuals all deal with costs on a daily basis. It is about what one gives up in order to pay the cost of something else. In the business world, costs are usually divided between material, labor and overhead costs (Dandago & Adah, 2013). However, their proportion may vary from industry to industry as the types of cost of the manufacturing and the service industries are very different. In order to success, a company needs to effectively manage their costs to make sure they are not spending more than they are earning (Dandago & Adah, 2013). Moreover, they try to decrease costs as often as possible because this directly increases the profit. In order not to miss the break-even points, companies set standards for costs. These standards are to be constantly updated and to be set not just by managers, but also by the personnel, who is directly involved in operation.
Unfortunately, the lower personnel is not always given the chance to participate in the setting of standards and managers take over this role, which sometimes forms the basis for disagreements (Dandago & Adah, 2013). The question suggested by the article is whether or not cost variance analysis is relevant regardless of any introduced standards. In order to find the answer to the question the authors of the article did several things. They analyzed the literature to see how to set effective standards. For the example, the manufacturing industry was taken. The authors wanted to see just how realistic the variance of cost control by management is. The study analyzed to see if cost variance analysis can effectively help in setting better standards in order to increase profits in the long run. This cost variance analysis was also to help better control the costs of the organization.
It is not surprising that the conclusions of the article call for teamwork. In the end, all that it takes to reach the best results are for different teams from the whole company to work together. This makes total sense as each part of the organization only works with one particular issues or issues. However, when they all come together, the full picture can be painted.
Nevertheless, the problem that I see in discussions with many participates is coming to one solution. The more voices there are, the harder it is to make one choice. That is why it is important that such multi-level meetings have a good leader responsible for the timing and process of the discussion. Moreover, everyone needs to understand that they will need to bend and compromise in order to come to one conclusion.
The beginning of the article talked about costs and spending of everyone: businesses and people alike. I think that the idea of coming together to set standards can also be applied to families. Just as in businesses, family members need to come together to come up with limits and standards for spending. This should be done in order to not spend more than everyone put together has. Looks like teamwork is important both in personal life and business life.
References
Dandago, K. & Adah, A. (2013). The Relevance of Variance Analysis in Managerial Cost Control. ScienPress. Retrieved 24 July 2016, from http://www.scienpress.com/Upload/JFIA/Vol%202_1_5.pdf
