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A technique whereby standard cost are computed and subsequently compared with actual cost to find out the difference between the two .
Repoting of these variances and analysise it for appropriate action.` ` ` ` ` Setting of standard cost for different elements Ascertaining the actual cost Comparing the actual with standard cost Analysing the variances for ascertaining the reason. .
` ` ` ` ` Effective cost control Helps in planning Helps in eliminating wastes Fixing price and formulating policies. Facilitates coordination. .
Inaccurate and un reliable standards may cause misleading results. Business may not be able to keep standards up to date. .` ` ` Standard costing is expensive and unsuitable in job order industries which are manufacturing non standard products.
` ` The difference which obtain while comparing standard cost and actual cost is called variance variance analysis is the process of analysing variance by sub dividing the total variance in such a way that management can assign responsibility for any off standard performance. .
` Favourable and un favourable variances Favourable variance: where the actual cost is less than standard cost is known as favourable variance Unfavourable variance: where the actual costs is more than standard cost. the difference is reffered to as unfavourable µadverse¶ or debit variance ` ` .
Controllable variance : The variance which can be controlled by the management ` ` . labour rate.` Controllable and uncontrollable variance If a variance arises due to certain factors beyond the control of management it is known as uncontrollable variance eg change in market price of raw material .
` ` ` ` It tells where the variance occurred but not why Significance of variance is not determined Information may be misinterpreted if the data is aggregated Future effects of variance not known 8 .