Page 23 - MAC4861_2 Costing class slides part 2

STANDARD COSTING
Investigation of variances

• Not all variances should be investigated as this process is

very expensive and time consuming.

• Consider the following before an investigation is

undertaken:

• Cost vs. Benefit
• Materiality

• Interdependency of variances
• Type of standard used

• Cumulative variances

• Variances may be due to random / uncontrollable or chance fluctuations
for which no cause can be found
• Nature of the variance

• The investigation of variances should result in an appropriate
remedial action being taken, or if it is found that the variance is due

to a permanent change in the standard, the standard should be
changed.
23