Variance Analysis
Variance Analysis
1. Define standard costs and describe how managers use standard costs in the management cycle.
2. Explain how standard costs are developed and compute a standard unit cost.
3. Prepare a flexible budget and describe how variance analysis is used to control costs.
4. Compute and analyze direct materials variances.
5. Compute and analyze direct labor variances.
6. Compute and analyze manufacturing overhead variances.
7. Explain how variances are used to evaluate managers’ performance.
Objective 1
Define standard costs and describe how managers use standard costs in the management cycle…… is a method of cost control that includes a measure of actual performance and a measure of the difference, or variance, between standard and actual performance
Realistic estimates of costs
Based on analysis of both past and projected operating costs and conditions
Provide a predetermined performance level for the standard costing method
Usually stated in terms of cost per unit
Based on
Past costs
Engineering estimates
Forecasted demand
Worker input
Time and motion studies
Type and quality of direct materials
How the standard costing method differs from the normal and actual costing methods
Planning
Managers use standard costs to
Develop budgets
Direct materials
Direct labor
Variable manufacturing overhead
Establish goals for product costing
Executing
Managers use standard costs to
Apply dollar, time, and quality standards to work
Collect actual cost data
Reviewing
Managers compare standard and actual costs
Compute variances
Provide measures of performance that can be used to control costs and evaluate managers
Analyze significant variances to determine cause
Unfavorable variances may reveal operating problems that require correcting
Favorable variances may indicate favorable practices that should be implemented elsewhere
Reporting
Managers use standard costs to report on
Operations
Managers’ performance
The Relevance of Standard Costing in Today's Business
1. Define standard costs and describe how managers use standard costs in the management cycle.
2. Explain how standard costs are developed and compute a standard unit cost.
3. Prepare a flexible budget and describe how variance analysis is used to control costs.
4. Compute and analyze direct materials variances.
5. Compute and analyze direct labor variances.
6. Compute and analyze manufacturing overhead variances.
7. Explain how variances are used to evaluate managers’ performance.
Objective 1
Define standard costs and describe how managers use standard costs in the management cycle…… is a method of cost control that includes a measure of actual performance and a measure of the difference, or variance, between standard and actual performance
Realistic estimates of costs
Based on analysis of both past and projected operating costs and conditions
Provide a predetermined performance level for the standard costing method
Usually stated in terms of cost per unit
Based on
Past costs
Engineering estimates
Forecasted demand
Worker input
Time and motion studies
Type and quality of direct materials
How the standard costing method differs from the normal and actual costing methods
Planning
Managers use standard costs to
Develop budgets
Direct materials
Direct labor
Variable manufacturing overhead
Establish goals for product costing
Executing
Managers use standard costs to
Apply dollar, time, and quality standards to work
Collect actual cost data
Reviewing
Managers compare standard and actual costs
Compute variances
Provide measures of performance that can be used to control costs and evaluate managers
Analyze significant variances to determine cause
Unfavorable variances may reveal operating problems that require correcting
Favorable variances may indicate favorable practices that should be implemented elsewhere
Reporting
Managers use standard costs to report on
Operations
Managers’ performance
The Relevance of Standard Costing in Today's Business