Overhead variances should be viewed as interdependent rather than independent

The operations of a firm are so inter linked that the level of performance in one area of operation will affect the performance in other areas. Improvements in one area may lead to improvements in other areas. A sub-standard performance in one area may be compensated by a favourable performance in another area. Because of such interdependency among activities in the firm, the managers should not jump to conclusions merely based on the label of variances namely favourable or unfavourable.

They should remember that there is a room for trade off amongst variances. Hence, variances need to be viewed as ‘attention directors’ rather than problem solvers. Thus, a better picture will be captured when overhead variance are not viewed in isolation but in an integrated manner.
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