Chapter 7, Problem 7.1Q

What is the relationship between management by exception and variance analysis?

To determine

Management by Exception:

Management by exception is the process of finding the deviations in the financial and operational outputs of a business and to report the deviations to the management.

Variance Analysis:

Variance analysis is the process of ascertaining the deviations between actual and planned output.

To determine: Relationship between management by exception and variance analysis.

Answer to Problem 7.1Q

The relationship between management by exception and variation analysis is,

• Management by exception is the process of diverting more attention of the management towards underperforming areas and to reduce the attention from the areas working as the expectation of the management.
• Variance analysis produces quantified results of the deviations between predetermined standards or outputs and actual performance.
• Variance analysis suggests the areas that are not performing as per the expectation of the management.

Explanation of Solution

• Variance analysis and management by exception are dependent on each other as variance is used to find the differences in budgeted and actual output and management by exception is used to give more focus on the default areas.
• With variance analysis certain areas causing deviations are identified that eases the work of management.

Conclusion

Thus, variance analysis is used to find the deviation in the performance and management by exception diverts the attention of the management towards underperforming areas.