Page 123 - P1 Integrated Workbook STUDENT 2018

Variance analysis

Standard costing in modern

environments

7.1 Variance investigation

Factors to consider include the following:

 the size of the variance

 whether favourable/adverse – firms often treat adverse variances as more
important than favourable

 correction costs versus benefits

 ability to correct

 past pattern

 budget reliability

 reliability of measurement/recording systems.

7.2 Problems in using standard costing in modern environments

Standard costing may not be appropriate in the modern production environment
because:

 products are non-standard

 standard costs become outdated quickly

 production is highly automated

 ideal standard used in modern environments

 emphasis on continuous improvement

 detailed information is required

 variance analysis provides results ‘too late’.

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