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Preliminary Results from an Experimental Investigation of the Effect of Performance-Based Rewards on Standard Cost Variance Analysis
Conference paper   Open access   Peer reviewed

Preliminary Results from an Experimental Investigation of the Effect of Performance-Based Rewards on Standard Cost Variance Analysis

Monte Wynder
Proceedings of the 2006 Conference of the Accounting and Finance Association of Australian and New Zealand, pp.1-29
Accounting & Finance Association of Australia and New Zealand (AFAANZ) Conference, 2006 (Wellington, New Zealand, 02-Jul-2006–04-Jul-2006)
Accounting and Finance Association of Australia and New Zealand
2006
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Abstract

Accounting, Auditing and Accountability incentives SCVA employee empowerment problem solving
This paper provides evidence of the impact of performance-based incentives on the process of Standard Cost Variance Analysis (SCVA). An experiment is performed in which participants use SCVA as a problem solving tool. Instruction (no instruction, rule-based instruction and principle-based instruction) and incentives (fixed-rate and performance-based) are manipulated. The preliminary results indicate that performance-based incentives are an effective way to reduce the time spent investigating immaterial variances. Principle-based instruction was found to be important, particularly in the investigation and response to complex patterns arising from a recurring problem. Concern is raised, however, over the tendency of rulebased instruction, particularly when combined with a performance-based incentive, to narrow and rigidify thinking. A narrow focus on applying the rules seemed to impede the identification, investigation, and response to a recurring problem that was significant by virtue of its cumulative effect.

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