Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 6

How would you recommend accounting for variances at the end of the year? Why?

Step 1 of 2

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Budgets

Budgets refers to a division or firms projected cost, revenue and profitability. It is used to project the cost, revenue and profitability at different activity levels. It helps companies to plans its funding, manpower and business operations. It helps to evaluate the performance also of a firm or division by comparing the budgeted amounts with actual results.

Cost variances

Cost variance is the difference between actual quantities (AQ) multiplied with actual price (AP) and standard quantities (SQ) multiplied with standard price (SP).