The variances discussed in Chapter 15 (for manufacturing overhead)are all components of a short- term financial control system.These variances are calculated using standard manufacturing costs and flexible budgets.As was argued in the text (both in Chapter 15 and elsewhere)a financial control system is but part of a more comprehensive management accounting and control system.
Required: (a)What are the primary limitations of short-run financial control measures?
(b)How can a short-run financial control system be expanded to become a more comprehensive management accounting and control system? Discuss,in at least some detail,how and why you would expand the system in an attempt to provide management with more useful information.
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Feedback: (a)The cost variances covered in Chapter 15 (manufacturing overhead),as well as those covered in Chapter 14 do not tell us what's wrong with a process or an operation.They may tell us something about the short-term financial consequences of something being wrong,but they are not inherently helpful in directing attention to the underlying causes of observed problems.Students should also make the point that nonfinancial performance indicators can be leading indicators of future financial performance.(There is an adage here: take care of the nonfinancial performance indicators and the financial results will take care of themselves. )Finally,students should mention the limitation of financial performance indicators in terms of operating personnel.Will such information provide the feedback needed to motivate continuous improvement? One can make the argument that operating personnel are better served with nonfinancial performance indicators,generated as close as possible on a real-time basis.

The Variances Discussed in Chapter 15 (For Manufacturing Overhead)are All