IndexRelationship between VariancesInterpreting the Variance ReportActual Performance OutcomeSince my variable hospital department's monthly budget results provided higher wages and lower supplies than the initial budget, the following factors will be considered to decide which variations to investigate: Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The first thing to consider is the reliability and accuracy of the figures provided. It is strongly believed that errors in the accounting of budget records or in the recording of actual costs and revenues could result in variances being reported where in reality no error exists. The second is the question of materiality; which has to do with the volume of variance showing the extent of the problem and the likely profits from rectifying it. Furthermore, it is necessary to examine the interdependencies of the variances. Sometimes, a variance in one aspect is always linked to a variance in another area. Take for example; a favorable change in raw material price resulting from the purchase of a lower quality material can cause a negative change in labor efficiency because the lower quality material is more difficult to process. These two variations should be considered together before making an investigation decision. Furthermore, the inherent variability of costs or revenues is also vital. Negative variance is likely to attract more consideration as it indicates problems. However, there is an ongoing debate about analyzing favorable variances so that a company can study from its successes. An unfavorable variation can be caused by a random event. A series of unfavorable changes usually indicates that a procedure is out of control. Another factor is controllability/likelihood of correction. If a cost or revenue is outside the manager's power (such as the world market price of a raw material), then there is no point in considering its cause. Assuming that the cost of correcting the problem is likely to be high compared to the benefit, there is little point in investigating further. (Neal, 2014) Relationship Between Variances There may be a relationship between direct materials variances and direct labor variances. As a matter of fact, there could be a relationship between many if not all of the variances. Assuming that a lower cost material is purchased to achieve a favorable material price variance, if the materials have some unhelpful attributes, an unfavorable material usage variance may result. If material characteristics cause additional labor hours, an unfavorable change in direct labor efficiency will result. If the materials require more skilled labor, there may also be a change in the labor rate. (Turner, 2001) Variance Interpretation Report Business organizations typically put in place a budget reconciliation report that provides management with a synopsis linking actual and projected performance. The report helps identify which areas to examine to take appropriate curative action and also highlights areas of exceptional performance. It is worth noting that variations may occur during the usual line of operations, due to a longer-lasting adjustment in the company's operating environment and because budgets or standards are too rigid or too flexible. (Bolles, 2007) Actual performance outcome Variance investigation is the quantitative examination of the variation between behavior, 1987)