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- Title
Laspeyres Indexes for Variance Analysis in Cost Accounting: A Reply.
- Authors
Shashua, Leon; Goldschmidt, Yaaqov
- Abstract
W.G. Frank's suggestion to divide the total period into smaller subperiods, in order to eliminate the joint variance, is innovative and should be given due consideration. He uses a numerical example to demonstrate his theory. The purpose of the reply is to investigate further his idea and to show under what conditions one can impute the joint variance proportionately to changes in price and quantity. Frank's procedure of using the previous period's results as a standard for the following period is illustrated by means of the conventional "box" of price and quantity variance for a single product or aggregate value product. The allocation of joint variance, accepting the premise of subperiods, depends on the time path of the factor changes. If the time path (subperiods) changes can be determined, then the graphical procedure suggested in this article is simple to implement. When the time path changes cannot be determined, whatever the reason may be, then the allocation should be based on assumed time paths of factor changes: like linear path (constant subperiod changes), divide the joint variance equally; exponential path (compound changes) allocate the joint variance proportionately.
- Subjects
ANALYSIS of variance; COST accounting; PRICE variance; ACCOUNTING methods; PRICE indexes; ACCOUNTING
- Publication
Accounting Review, 1976, Vol 51, Issue 2, p432
- ISSN
0001-4826
- Publication type
Article