Why is it important to investigate both price (rate) and volume (efficiency)

Added on - 30 Sep 2019

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Question-Why is it important to investigate both price (rate) and volume (efficiency) variances when rewardingemployees for satisfactory work when performance evaluations are based on meeting budgets?Solution-The difference or the comparison between the actual and standard performance is called variance.Moreover the variance shows the deviation of actual and standard outcomes. Variance analysis is veryhelpful for the company to know about their cost structure. Variance analysis helps the management ofcompany in checking the various areas where performance is above and below the companyexpectations.Price variance is linked to purchase department employees and they have no connectionto efficiency variance while efficiency variance is attributable to operations and they have no connectionto price variance(Jude Aruomoaghe, Sunny Agbo, 2013).This variance enables the performanceassessment against the benchmark standards as adopted by the organization. Favorable variance meansemployees have performed good while adverse variance means employees has performed belowexpectations.The investigation of price and volume is very critical for the company when rewards are giving toemployees for theirsatisfactory work. If the price rate variance is not favorable then the individual whohas been given the authority of buying the material can be held responsible and if it is favorable thenthe reward can be given to that individual(Jude Aruomoaghe, Sunny Agbo, 2013).Moreover, if thevolume variance is shows the favorable figure then it shows the efficiency has been achieve due to thegood performance of the employee and if the volume variance is not favorable then the individualsupervisor should be responsible for the poor performance of the employee.
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