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A Simulation Analysis of Alternative Cost Variance Investigation Models, Accounting Review


The article presents a simulation analysis of alternative cost variance investigation models. In past some authors have suggested that the lack of application of more complex cost variance investigation models could be due either to management's lack of awareness or to the fact that the stochastic cost processes assumed by these models are not descriptive of processes which generate actual costs. Results of some studies made in this field indicate a number of other possibilities for the lack of application. A rational manager who is evaluated on the basis of his or her operating results or on the number of times he or she makes the budget may well prefer a naive cost investigation rule. More important, a manager who is concerned with all costs could very well prefer a less complex investigation rule. As a result, survey research, which seeks to determine the acceptance of the more sophisticated cost investigation models, also should determine the basis on which the decision-maker is evaluated and rewarded, since this will affect his or her model choice. These same considerations should be taken into account in the development of cost variance investigation models which employ more complex stochastic processes.




Robert Magee

Date Published



Magee, Robert. 1976. A Simulation Analysis of Alternative Cost Variance Investigation Models. Accounting Review. 51(3): 529-544.


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