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Explain the meaning and relevance of interdependence of variances when reporting to managers.

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Chapter20Standardcosting

Interdependence of variances is the term used to describe the situation when there is a single cause of a number of variances.

For example, the use of a higher grade of labour than was anticipated is likely to cause an adverse labour rate variance, a favourable labour efficiency variance, and possibly a favourable material usage variance (due to more experience of working with materials).

It is important that when variances are reported, the possibility that some of them may have a common cause should be acknowledged, and managers encouraged to work together for the benefit of the organisation.

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