Indisurers Ltd finds that the variances for direct labour efficiency for processing motor insurance claims, since the
Question:
Indisurers Ltd finds that the variances for direct labour efficiency for processing motor insurance claims, since the beginning of the year, are as follows:
The average total cost of labour performing this task is about £1,200 a month.
Management believes that none of these variances, taken alone, is significant given the monthly labour cost. The question is, are they significant when taken together? If we add them together, taking account of the signs, we find that we have a net adverse variance for the year of £73. Of itself this, too, is probably not significant, but we should expect the cumulative total to be close to zero where the variances are random. We might feel that a pattern is developing and, given long enough, a net adverse variance of significant size might build up.
Investigating the labour efficiency might be worth doing. Finding the cause of the variance would put management in a position to correct a systemic fault, which could lead to future cost savings.
Step by Step Answer:
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Accounting An Introduction
ISBN: 9780273733201
5th Edition
Authors: Eddie McLaney, Dr Peter Atrill, Eddie J. Mclan
