Traditional Variance Analysis In Accounting

The traditional variance analysis method actually is used in everywhere. There is one interesting discussion from Chenhall and Langfield-Smith in 1998 which examines the Australian accounting application. In Australia, the traditional and current development management accounting practices was widely accepted and applied. The authors believe that those traditional accounting methods such as variance analysis is much better than some new techniques (Chenhall & Langfield-Smith, 1998). The previous literatures have shown that budget variance analysis is used by more than 93% of respondents for setting the goals and also by making the project evaluation. The benefits from traditional management accounting methods are that they help firms to make …show more content…
Mitchell, and Thomas (2007) has discussed that in the previous experience, scientists have developed two key assumptions for the variance analysis applied in the accounting practices. The two assumptions are the small error from the allocation of small residual variances and the conventional two-variance solution might be the most accurate result for the manufacturing companies. However, the authors present that those assumptions are not available again today because they have test the previous model and find the new evidences to reduce the errors in the calculation and improve the model. The minimum potential performance budget method could be one good example of improvement in the variance analysis. The media management such as advertising and the sales revenues examination are tested with this MPPB method and it seems to be more accurate than previous models. The authors suggest that managers should use the traditional variance analysis to see the performance of the business and then use the MPPB method to do the more accurate analysis. There are also some ethical issues related with the variance analysis and some other management accounting methods (Flory et al., 1992). The research shows that the directors who choose different accounting methods such as variance analysis might have quite different opinions. Some of them might show the positive results and some of them might be the negative ones. It is important to understand the different results and the reasons of these results. The different results from evaluation and appraisal bring challenges to the directors in the ethical side as well. The directors must consider the benefits and best interests of shareholders and adjust the evaluation