- This topic has 1 reply, 2 voices, and was last updated 16 hours ago by
.
- Posts
As per topic title, why is it that in the calculations we multiply the variance by the standard cost and not the revised cost. What is the logic behind it. I’m trying to understand but cant quite wrap my head around it. I understand that it comes from an old method that the prior examiners preferred.
The standard cost represents the expected cost based on the original budget, which allows for a consistent basis of comparison.
When calculating operational variances, the focus is on measuring the efficiency of resource usage against the original standards. ( e.g. how well the manager controlled costs relative to what was originally planned).
The revised cost, on the other hand, reflects changes that may have occurred due to external factors, such as price increases. While it is important to acknowledge these changes, the standard cost provides a stable reference point for evaluating performance.
Both methods of calculation (using standard or revised costs) are accepted in exams, but the current examiner prefers the approach that uses standard costs for operational variances, as it simplifies the analysis and maintains consistency in performance evaluation.
- You must be logged in to reply to this topic.