Explain the term variance and distinguish between controllable and uncontrollable variance
Answers
Variance means difference. The term variance has been derived from the verb ‘to vary’ meaning to differ. The real picture of the standard costing to the management is the presentation of variances. In the practical sense, sometimes standard costing is meaningless because without the predetermination and analyzing the variances of cost.
Controllable variances are those which arise due to inefficiency of a cost centre i.e. individual or department. For example, excess usage of materials, excess time taken by worker etc. is the relevant examples of controllable variance. Uncontrollable variances are those variances which arise due to factors beyond the control of the management or concerned person or department of the organisation.
Uncontrollable variances normally arise due to the external factors only. For example, government restrictions, change in the market price etc. Whenever uncontrollable variance arises, no particular individual can be held responsible for it.
The ultimate aim of the standard costing is the effective cost control.
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