Several tools are available to managers when evaluating organizational performance. Variance analysis is one such tool used to evaluate performance. Variance analysis compares actual costs with standard costs. The results from a variance analysis are important for helping managers control costs as well as identify areas were organizational performance and efficiency can be improved.
To prepare for this Discussion: Shared Practice, review the Learning Resources for this week and reflect on how actual costs, standard costs, and variance analysis will contribute to your current or future role as a manager or in decision making. Consider the role of variances when engaged in decision making and how variance analysis might help contribute to improved organizational efficiency.
Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York, NY: McGraw-Hill.
- Chapter 12, “Standard Costs: Direct Labor and Materials” (pp. 538–563)
This chapter describes standard costs for decision making and control as well as direct labor and direct material variances.
Post by Day 3, the following:
- Describe a scenario in which there are both highly favorable and highly unfavorable variances. Be sure to include the actual and standard costs in your scenario.
- Analyze how and why you, as a manager, would prioritize the variances for analysis and how knowing these variances might help you improve efficiency.