A Strategic Perspective on a Common

Cost Management Tool

Profit Variance Analysis

DescriptionProcess of summarizing what happened to profits during the period to higlight the sailent managerial issues

Variance analysis is the formal steps leading to determining what corrective actions are called for by management

Involved a simple methodology in which actual result were compared with the budget

Case of Unite Instruments, inc

Additional Information

The Annual Report Approach to Variance Analysis

A Management Oriented Approach to Variance AnalysisIdentify the key causal factors that afect profitsBreak down the overall profit variance by these key causal factors

Focus always on the profit impact of variation in each causal factor

Try to calculate the spesific, separable impact of each casual factor by varying only that factor while holding all other factor constant

Add complexity sequentially, one layer at a time, beginning at a very basic common-sense level

Stop the process when the added complexity at a newly created level is not justified by added useful insight into the casual factors underlying the overall profit variance

Thingking Variance Analysis Using A Strategic Framework

Variance Analysis : A Strategic Focus