MA.7:4 - Solution
MA.7:4.1 - Restore a comparable account
Identify the two values, their subjects, periods, units and purposes. Recover the definitions, recognition, valuation and allocation rules that produced them. Use MA.4 for a view difference and MA.3 for a changed assignment.
Separate a genuine work or price change from a changed measurement or account boundary. Keep an unresolved comparison problem visible before interpreting a variance as performance.
MA.7:4.2 - Construct the intermediate accounts
Choose the adequate resource and monetary relationship that produces both totals. For materials this may be output by product, material requirement per product and material price. For margin, use the corresponding recognized revenue less the included costs on the same account basis. MA.1 supplies a missing consumption relationship; MA.3–4 resolve an assignment or recognition difference.
Start with the reference account and change the factors in a stated order until the model reaches the actual account. At each transition, change the selected factor while holding the other stated values fixed. Calculate the new total, then subtract the preceding total. These adjacent differences add to the overall change because each intermediate total enters once positively and once negatively.
For an activity and product-mix explanation, construct the following comparisons:
- Reference activity and composition. Recover the original output quantities, resource requirements and prices.
- Actual total activity at reference composition. Apply the original product proportions to actual total output, retaining reference consumption and prices. This isolates volume under that convention. Use a meaningful common activity unit; incompatible products may need separate families or another supported activity measure.
- Actual composition at reference requirements. Insert actual output by product, still using the reference resource requirement for each product and reference prices. The difference from the preceding account is the mix component.
- Actual consumption at reference prices. Insert the material or other resource quantities actually consumed. Compare them with the requirements of the actual product mix. This leaves a within-product usage question instead of attributing every change in the aggregate average to waste.
- Actual consumption and actual prices. Insert the actual prices to reach the actual monetary total. Any remaining recognition or measurement difference must be explained on its own account basis.
The model determines which comparisons are useful. A paid block, reserve or commitment can remain unchanged over several activity levels, then change at a threshold. Recalculate that supply relationship at each stage instead of multiplying every payment by a volume ratio. If changing one factor while retaining another would describe an incoherent or unsupported combination, use an adequately supported combined component or leave that separation unresolved. A convenient table does not make an impossible comparison meaningful.
Reconcile the components to the total. Keep a residual visible if the model or observations cannot explain it. When more detail explains a component, replace that parent component with its subdivisions in the total; do not count both. A smaller decomposition is sufficient when further separation cannot change the response.
Preserve the original plan or forecast when that is the comparison being explained. A reference account recalculated at actual volume helps locate a difference; it does not retroactively change what was originally expected. A later revised forecast is a separate comparison with its own information basis.
MA.7:4.3 - Test the explanation behind the arithmetic
Ask what actually changed each consequential component. Compare operating evidence, terms and relevant conditions. Higher material use per accepted unit might follow a harder product mix, failed attempts, a measurement change or a process defect.
Distinguish association and assigned arithmetic effect from a supported causal explanation. Investigate the rival explanations that would lead to different actions. If adequate evidence is unavailable, return the bounded uncertainty and the next observation or specialist result that could resolve it.
MA.7:4.4 - Return the explanation and appropriate response question
Supply the total difference, its adequate decomposition and the supported causes or remaining uncertainty. Keep controllability and responsibility claims at the scope their evidence warrants.
Use the relevant operating, commercial or financial method for the response. MA.5 updates a future outlook when the changed condition is expected to persist; MA.9 examines incentives that may be influencing the account or behavior.