An Alternative Approach to an Analysis of Standard Cost Variances

Abstract

Variances, or the differences between budgeted, planned, or standard amounts and the actual amounts incurred or sold, are a critical part of managerial accounting. They give managers a basis for making informed decisions, yet many accounting students have a difficulty with variance analysis. Part of this difficulty may be caused by their manner in which this topic is typically presented in cost/managerial accounting text books.

The case presented in this paper allows students to see the "Big Picture" without being overly complex. While students are required to calculate all variances typically presented in cost/managerial textbooks, they are continuously reminded of the numerous similarities in the computational aspects of these variances. Furthermore, they learn - and understand -alternative methods for computing variances and presenting their solutions.