2.1 Variance analysis

Question 1

What are the two types of control?

Answer 1

1) Feedback control
==> Steps are taken to get operations back on track when light has shed that something has gone wrong
==> includes creating budget, collecting information on actual performance, getting feedback and comparing with the budget and taking actions on derivations and create adjustments, create the performance again
==> react to exisiting problems

2) Feedforward control
==> Predictions are made as to what could go wrong and steps then taken to avoid any undesirable outcomes
==> budgets can also be used to exert this type of control
==> includes preparing a budget and preparing a forecast of the actual outcome, identifying the deviations between budget and forecasted outcome, evaluating results and take actions of deviation.
==> proactive and tries to anticipate problems beforehand
==> as its better to avoid problems rather than have to solve them, this method is preferable but not always available as takes time and needs very accurate predictions.

Question 2

What is meant by over absorption?

Answer 2

Adjustment is positive impact on profit as we have recovered too much in the form of overhead expense