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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

Which of the following is the most appropriate treatment in a budgetary control report when a cost variance arises from a supplier price rise across the whole market, which the budget holder could not have avoided?

The variance should be identified as uncontrollable by the budget holder and reported separately, with possible budget revision. This avoids unfairly blaming the manager while still giving senior management information about the market price rise.

  1. AReport it as adverse and hold the budget holder fully accountable
  2. BRemove it from the budget holder's report and investigate nothing
  3. CIdentify it as uncontrollable by the budget holder and report it separately, possibly revising the budgetCorrect
  4. DTreat it as a favourable variance because prices are higher

Explanation

Uncontrollable variances should be separated so the manager is not judged on them, but still reported to higher management for action such as budget revision or pricing decisions. Ignoring it entirely loses information.

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