CMA
Comprehensive study of cma covering fundamental concepts and advanced applications.
Advanced Topics
Standard Costing and Variance Analysis
Setting Standards and Measuring Performance
Standard costing sets a benchmark for costs. Variance analysis compares actual results to these standards to spot differences and improve performance.
Steps in Standard Costing
- Establish cost standards for materials, labor, and overhead.
- Measure actual costs.
- Analyze variances (differences).
- Investigate and act on significant variances.
Types of Variances
- Material Variance
- Labor Variance
- Overhead Variance
Importance
Variance analysis helps managers understand what went right (or wrong) and take corrective action.
Real-World Value
Companies can quickly detect inefficiencies, reduce waste, and improve profitability.
Key Formula
\[\text{Variance} = \text{Actual Cost} - \text{Standard Cost}\]
Examples
A car manufacturer finds labor costs higher than standard, investigates overtime issues.
A clothing retailer reduces fabric waste after analyzing material variances.
In a Nutshell
Standard costing and variance analysis identify performance gaps in cost management.