Managerial Accounting: Cost Variance Analysis and Control in Business

This report delves into managerial accounting, focusing on cost variance analysis. It defines a favorable variance as an instance where a business gains more than expected or incurs fewer expenses than anticipated, often related to budgetary amounts. The production department typically manages favorable cost variances. In the airline industry, fuel costs significantly contribute to these variances, fluctuating with crude oil prices. The report suggests strategies for correcting variances, including eliminating unwanted budget variances and tracking business performance against expectations. Positive variances boost profit, while negative variances reduce it, emphasizing the need for companies like Delta Airlines to prioritize positive variance management.

Running head: MANAGERIAL ACCOUTING
Managerial accounting
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MANAGERIAL ACCOUTING
Table of Contents
Answer to question 1......................................................................................................2
Answer to question 2......................................................................................................2
Reference:......................................................................................................................3

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Answer to question 1
A favourable variance indicates an option where a business have gained more than
expected or have made expenses more than expected. However it is an amount of standard or
budgetary amount over the actual amount incurred. This is generally known as budgetary
amount. The favourable cost variance is basically look after by the production department of
the company. However in case of the airline industry the main Cause which are been
associated with the favourable cost variance would be fuel cost. These costs fluctuate
depending the price of the crude oil and when the cross variable goes up the cost fluctuates.
Similarly for the case of delta airlines, the same could be occurred (van der Ploeg et al., 2015)
Answer to question 2
In order to correct the variance it is important to follow some tips. These are as
follows-
 Cheeking and eliminating all the bad and unwanted budget variance. However
some are positive variance and some are negative variance. Positive variance
boost profit while the negative variance reduces profit. Similarly delta airlines
also need to ensure positive variance always (Tom & Paul, 2013).
 Finding the variance difference which means whether the variance had meet
the expectation and how the company had been tracking the business.
Similarly delta airlines can also track their business with this variance.

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Reference:
Tom, A. F., & Paul, S. (2013). Project monitoring and control using primavera. International
Journal of Innovative Research in Science, Engineering & Technology, 762-771.
van der Ploeg, C. P. B., van den Akker-van Marle, M. E., Vernooij-van Langen, A. M. M.,
Elvers, L. H., Gille, J. J. P., Verkerk, P. H., ... & CHOPIN study group. (2015). Cost-
effectiveness of newborn screening for cystic fibrosis determined with real-life
data. Journal of Cystic Fibrosis, 14(2), 194-202.