Question

Pick an organization within the airline industry that you are familiar with or interested in learning about. Identify an example of when a favorable cost variable would not be good news for the performance of the organization.

• What department would be responsible for the variance?
• What would you recommend to correct the variance?
• Explain your reasoning.

Answer 1

Ans;  One of the most well known organization within the airline industry is the International Air Transport Association (IATA). This is a trade association which was formed on 19th April 1945,in Havana,Cuba. It's headquarter is situated in Canada and it consists of 290 airlines representing 117 countries. One of the most important priorities of IATA is safety and the main tool for that is the IATA Operational Safety Audit. This association provides services on training and consultation on critical areas to aviation. Also running through the billing and settlement plans, this organization provides a number of business intelligence publications and services.

Favorable cost variable is an accounting situation where the actual cost generated is less than the estimated or budgeted one(the expenses are in favor of the business).

However favorable cost variable doesn't always have a positive impact on the performance of an organization. Departments like labor,materials and purchase (labor rate variance, purchase price variance,material variances) would be responsible for the variances.

For rectifying the errors that led to the variance,top management should examine the circumstances that determine the factors that created it. In studying variances in costs,a company may find that the assumptions that they made initially in their budgets were in error. This too should be corrected so that the budgeted cost will correctly reflect the likely outcome in the next period.