Accounting · Study Guide
Key Points
Standard costs are predetermined target costs set for labour, materials, and overheads
Variances compare actual costs to standard costs and identify areas of over-spending or under-spending
Variance analysis enables managers to investigate causes and take corrective action
Exam Focus
Calculate material, labour, and overhead variances. Interpret whether variances are favourable or adverse and suggest possible causes.
Must-Know Terms
Cross-Theme Connections
Marginal costing
Variance analysis assumes understanding of variable and fixed cost behaviour
Budgeting
Variances feed into budget control and performance reporting
Absorption and activity based costing
Absorption costing methods interact with standard costing systems