Common variances
Explain why variances for direct material and direct labor are separated into price and efficiency variances.
Suppose that utilities are considered a fixed cost for a retail clothing outlet. Why might we expect a variance to occur for
the cost of utilities?
How might variance analysis contribute to a diagnostic control system?
Fly–a–Kite Company manufactures a variety of kite kits. You have been asked by the production manager to prepare a
simple but meaningful variance report for product costs so that she can identify areas in need of improved cost control.
List all of the variances you would present in the variance report for production costs and explain why each is useful.
Identify the common variances that are needed to reconcile the accounting records at the end of the period for a
manufacturing organization. How are these variances treated at the end of the period if the total variance is immaterial?
How are they treated if the total variance is material?
Discuss factors that affect accountants’ decisions to investigate the reasons for variances.
Explain how accountants and managers decide which cost variances to monitor.
How are standard costs determined?
List several ways that variances can be used to improve future operations.
