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Nature of Variance Analysis

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STANDARD COSTING AND VARIANCE ANALYSIS
After the lecture, class and recommended reading
you should be able to:
Outline the nature and purpose of an operational
control system and the role of budgets,
standards and variances.
Explain how standard costs are set and define
basic, ideal and currently attainable standards
Compile flexible budgets and from these
calculate labour, materials overhead and sales
variances and reconcile actual profit with
budgeted profit
Identify the causes of variances and discuss the
factors leading to the decision to investigate
variances
Discuss the limitations of traditional standard
costing systems and assess alternatives

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Essential Reading
Drury Chapters 12, 15 and 16 (pages 461 and 468-
482)
Drury C (1999) ‘Standard costing: a technique at
variance with modern management?’, Management
Accounting, November
Graham C, Lyall D and Puxty A (1992) ‘Cost control:
the managers perspective’ Management Accounting,
October
Kaplan RS and Norton DP (2000) ‘The Balanced
Scorecard Measures that Drive Performance.’
Harvard Business Review, January-February, pages
71-79.
Recommended Reading
Gowthorpe: Chapter 18
Atrill and McLaney, Chapter 7

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STANDARD COSTING AND VARIANCE ANALYSIS After the lecture, class and recommended reading you should be able to: Outline the nature and purpose of an operational control system and the role of budgets, standards and variances. Explain how standard costs are set and define basic, ideal and currently attainable standards Compile flexible budgets and from these calculate labour, materials overhead and sales variances and reconcile actual profit with budgeted profit Identify the causes of variances and discuss the factors leading to the decision to investigate variances Discuss the limitations of traditional standard costing systems and assess alternatives Essential Reading Drury Chapters 12, 15 and 16 (pages 461 and 468-482) Drury C (1999) ‘Standard costing: a technique at variance with modern management?’, Management Accounting, November Graham C, Lyall D and Puxty A (1992) ‘Cost control: the managers perspective’ Management Accounting, October Kaplan RS and Norton DP (2000) ‘The Balanced Scorecard – Measures that Drive Performance.’ Harvard Business Review, January-February, pages 71-79. Recommended Reading Gowthorpe: Chapter 18 Atrill and McLaney, Chapter 7 Stages in the planning process (Drury 2005, page 265) 1. Establish objectives 2. Identify potential courses of actions (i.e. strategies) Long term planning process 3. Evaluate alternative strategic options 4. Select alternative courses of action 5. Implement lon ...
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