Standard Costing and Variance Analysis

Need to know

What you need to know

• **Advantages:**
• **Performance Measurement:** Provides a benchmark to evaluate the performance of departments and managers.
• **Cost Control:** Highlights variances, allowing for 'management by exception'-focusing only on areas with significant deviations from the standard.
• **Budgeting:** Simplifies the process of setting budgets and cash flow forecasts.
• **Motivation:** Clear, achievable standards can motivate employees to work efficiently.
• **Valuing Inventory:** Can simplify stock valuation for financial statements.
• **Disadvantages:**
• **Setting Standards:** Can be time-consuming and expensive to establish accurate and fair standards.