When variances are used as an input to the performance evaluation system, which of the following scenarios may be encountered?
A)Purchasing managers may buy too much inventory to get a bulk purchase discount
B)Purchasing managers may buy lower quality materials to generate a favorable price variance
C)If standards are set at easily achievable levels, some people will only do enough to meet the target, but no more
D)When labor efficiency is measured on a team or production cell basis, the free rider may take advantage
E)All of the above

Question

Quizplus · Accepted Answer

All of the scenarios listed represent potential issues that can arise when variances are used as input to performance evaluation. Purchasing managers may be motivated to buy too much inventory or lower quality materials in order to generate favorable price variances, which can lead to inefficiencies and waste. Setting easily achievable standards can also lead to complacency, where employees only work to meet the minimum requirements rather than striving for greater performance. Finally, measuring labor efficiency on a team or production cell basis can create free rider problems, where some team members may not work as hard but still benefit from the efforts of others.

When Variances Are Used as an Input to the Performance