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ACCA Applied Skills · Performance Management · Planning and operational variances

Which of the following is a valid criticism of reporting only traditional (non-planning) variances when the original standard was set unrealistically?

Traditional variances can hold managers accountable for adverse results caused by faulty or outdated standards or uncontrollable external events. Separating planning from operational variances isolates the part that managers can actually control, giving a fairer assessment of their performance.

  1. AManagers may be held accountable for variances caused by faulty standards or uncontrollable external eventsCorrect
  2. BVariances will no longer reconcile to the total cost difference
  3. COperational managers will receive excessive credit for favourable planning variances
  4. DStandards will be considered fixed and cannot be reviewed

Explanation

Traditional variances compare actual results with an original standard that may be out of date, so they mix planning errors with operational performance. This makes managers accountable for matters outside their control and can reduce motivation. Splitting variances still reconciles to the total, so option B is wrong.

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