Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 11

Standard Costs and Variance Analysis

In Brief

Accountants produce information that managers use to monitor operations. Standard costs and variances from budgets are an important part of that information. Variances are calculated by comparing standard revenues and costs with actual revenues and costs. Through the analysis of these variances, managers identify operating processes that need investigation and possible improvements. They also learn whether planned improvements in operations have been achieved. Variance information helps managers learn whether operations are in control and create more accurate plans for future operations. In addition, variance analysis provides information for evaluating employee performance.

This Chapter Addresses the Following Questions:

• Q1 How does variance analysis contribute to the strategic management process?
• Q2 What is a standard costing system, and how is it used?
• Q3 How are direct cost variances calculated?
• Q4 How is direct cost variance information analyzed and used?
• Q5 How are variable and fixed overhead variances calculated?
• Q6 How is overhead variance information analyzed and used?
• Q7 How are manufacturing cost variances closed?
• Q8 Which profit-related variances are commonly analyzed? (Appendix 11A)

RESPONDING TO UNEXPECTED CHANGES IN RESOURCE SUPPLIES AND PRICES

Contractors in 10 U.S. states reported severe cement shortages ...