1. Materiality:
The amount of the variance should be substantial enough to necessitate the investigation.

2. Controllability:
If the reason for the variance is obvious, for example, the management has taken a decision to give a pay hike of 10%, and then the labor rate variance could be adverse. If the reasons are known, there is no need to investigate the variance.

3. The Type of Standard Used:
If the standard is set at the ideal level of efficiency, the variance could always be adverse.

4. Variance Trend:
If a variance is occurring every month and is of the same or similar amount, then investigations need to be done to find out the root cause.

5. Interdependence Between Variances:
If one variance affects another, then there is no requirement for an investigation. For example, cheap material will make the material price variance favorable and the efficiency variance adverse. Cheap materials could also make the labor efficiency variance adverse.

6. Cost of the Investigation:
If the estimated cost of the investigation is more than the benefit of the investigation, it is pointless to carry out the investigation.

(Any 4 points @ 1.25 marks each = 5 marks)