Standard costing and variance analysis is usually found in manufacturing businesses which tend to have repetitive production processes. It is the repetitive nature of the production process which allows reliable and accurate standards to be established. The standard costs set should be realistic and achievable based on accurate historical or comparable industry data such as material and labor usage. If the original standards are set incorrectly, then the variances produced against those standards will also be incorrect and misleading, resulting in poor management decisions being made by the business. As an example, consider a manufacturing business, for each product it might set standards for each of its major cost types along the following lines:. Allowing for normal wastage, the product is expected to need 2.
Standard Costing Variance Analysis - Study Notes, Question Answers, Problems Solutions
Standard Costing and Variance Analysis | Double Entry Bookkeeping
It is important to predict the whole sum of the difference in numbers in order to plan the further development of the company and improvement of its strategies due to these variances in expenditures. Variance analysis is extremely important for the small developing firms, because every extra sum of money is a plus and a chance for the further improvement. Variance analysis is a useful practice which can make the development of business more rapidly and more effective, because if the company produces similar goods, it can predict the variance on all its production and use the extra money effectively. The topic on variance analysis is quite interesting and important for every future accountant. If one is asked to complete a successful variance analysis case study, he will have to read on the topic a lot to improve his knowledge on the problem under research. There are many reliable sources which can be at hand in the process of writing and help a student become aware of the aspects and principles of variance analysis. A student is supposed to investigate the topic professionally, collect the appropriate data for the research and draw the wise conclusions in the end.
Case Study on Variance Analysis
The different organization adopts different costing techniques to lower their cost of productions. One such very popular costing technique adopted by many organizations is Standard Costing and Variance Analysis. Selection of the best-suited costing technique for a modern organization is of prime importance as it will ensure cost correctly and help the organization to develop a system through which the business will be able to identify the true cost of its products and services and charge a price matching with the competitors and book profits from its future growth. It also summarizes the limitations and difficulties that the management faces while applying standard costing and variance analysis techniques in a particular modern organization and ways and means for management to overcome the same and estimate the correct cost structure of their products. Standard costing is a costing technique to find the standard cost that is required to be incurred for a particular product or service and then comparing its actual performance with the set standards to find any deviations from the same.
Harvard Case Studies. The problem statement refer to the concise description of the issues that needs to be addressed. It identifies the issues or gap between the current and desired type of the organization, and thus requires to be stated in order for the management to look for change.