Accounting

Variances and Standard Costing – Some Insights Standard costing is one tool that may be useful in determining product cost. Variance analysis is also often a part of the control or performance measurement systems of organizations. When you complete your study of material in this section you should be able to; Explain and illustrate the following terms: •. benchmark •. benchmarking •. effectiveness •. efficiency •. favorable variance •. flexible budget •. flexible budget variance •. labor efficiency variance •. labor rate variance •. material price variance •. materials quantity variance •. sales volume variance •. selling-price variance •. standard •. standard cost •. standard input •. standard quantity allowed •. static budget •. unfavorable variance •. variance •. variance analysis •. •. •. •. •. •. •. •. •. Explain why standards are necessary Use a fact situation to explain how to set a material or labor standard; include in the discussion they type of standard that would be appropriate Compute and explain a sales price and a sales volume variance Compute and explain material price and quantity variances Compute and explain labor rate and efficiency variances for both manufacturing and marketing labor Use a fact situation to explain why material or labor variances may occur Use a fact situation to determine where responsibility for a variance lies. Explain when to investigate variances. Static Versus Flexible Budget

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Master Budget is Static: Why? Because it is derived from ONE level of sales Flexible Budget can be adjusted for any level of production or sales. It represents actual results (Actual sales X budgeted prices). The flexible budget can be based on units of input or units of output. A flexible budget allows managers to compute a more informative set of variances than does a static budget. -. A favorable variance increases operating income relative to the budgeted amount. -. An unfavorable variance decreases operating income relative to...