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

Exercise 12

What is the advantage of recognizing materials price variances at the time of purchase rather than at the time of use?

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.

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).