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Relevance of Standard Costing & Variance Analysis - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Relevance of Standard Costing & Variance Analysis Contents Contents 2 Introduction 3 Critical Analysis of Standard Costing & Variance Analysis 3 Conclusion 6 References 7 Bibliography 7 Introduction This project involves a critical analysis of the standard costing system and variance analysis in modern management…
The standard cost is a predetermined unit cost i.e. the price and standard amount of each resource to be utilized in manufacturing a product and providing a service. A variance is the difference of actual cost incurred and expected standard cost. The variance analysis involves breakup of total variance to explain how much variance is caused by difference in use of resources from the standard usage quantity and how much variance is caused by the difference in prices of resources from the standard costs (Scarlett, 2008, p.96). The standard costing can be advantageous only if the cost standards are carefully established and prudently used. The use of standards solely for placing blame can have negative impact on management and employees. The major advantages include better management planning, promotes economy by making the employees understand importance of cost reduction, setting selling price, management control, highlights variances in management by exception and simplify the inventories’ costs reducing clerical costs (Weygandt, Kimmel & Kieso, 2009, p.495). ...
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