STANDARD COSTING AND VARIANCE ANALYSIS A bit about Budgeting To know whether they are performing well, there

there must be a system of Monitoring Performance. Thus, predetermined rates will have to be set in advance that the business thinks should normally prevail in specific circumstances. A manufacturing business will have to set in advance figures for materials, labour and overheads. Another business will have to set in advance figures for sales. These figures, called standards, may be expresses either in unit amount (units, kg, litre) or in monetary value ($)

Here, the main thing one will have to master is to compare Standard figures with Actual figures. (One must know how to extract information from a question) Note that here; the principle of Flexing Budgets depending on the level of activity will have to be used. Talk about Variances What are they? What Main variances exist What Sub-Variances exist

Explain how to calculate the Variances: Materials, labour, Overheads and Sales (Show how to derive formula with examples) The two types of variance (Adverse and Favourable) Their effects on profit Show how to reconcile Budgeted profit with Actual profit

Further Explanations Possible reasons for a variance How to comment on variances How variances may be interlinked

Work some questions (at exams level)