9706 · 4.2.1
Standard Costing and Variance Analysis — FAQ
Frequently asked questions for 9706 Standard Costing and Variance Analysis. Direct answers first, then deeper explanation — then practise with marking.
What's the difference between a standard and a budget?
A standard is a cost per unit (e.g., $5 of material per product). A budget is a total planned cost or revenue for a period (e.g., $50,000 material budget for the month). Budgets are often built using standards (Standard Cost per unit x Budgeted Volume).
How often should standards be updated?
Standards should be reviewed regularly, typically annually. They may need to be updated more frequently if there are significant and long-term changes in prices, technology, or production methods. Using out-of-date standards produces meaningless variances.
Who is responsible for a particular variance?
Responsibility is usually assigned to the manager who has the most control over the cost. For example, the Purchasing Manager is responsible for the material price variance, while the Production Manager is responsible for the material usage and labour efficiency variances.