Business – 5.4 Costs – Cost information | e-Consult
5.4 Costs – Cost information (1 questions)
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Inaccurate cost data can lead to:
- Mis‑allocation of resources, as budgets may be based on faulty assumptions.
- Poor performance control, because variance analysis will highlight differences that are artefacts of bad data rather than real inefficiencies.
Example of a variance table:
| Cost Item | Budgeted (£) | Actual (£) | Variance (£) |
|---|---|---|---|
| Direct Materials | 50,000 | 55,000 | +5,000 (Unfavourable) |
| Labour | 30,000 | 28,000 | -2,000 (Favourable) |
When the cost figures are inaccurate, the variances shown above may mislead managers, prompting unnecessary corrective actions or overlooking real problems.