Away, as discussed in the chapter opener, uses a costing system with standard costs for direct materials, direct labor, and overhead costs. Two comments frequently are mentioned in relation to standard costing and variance analysis: “Variances are not explanations” and “Management’s goal is not to minimize variances.” Required Write a short memo (no more than one page) to Jen Rubio and Steph Korey, Away’s co-founders, interpreting these two comments in the context of their luggage business.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Away, as discussed in the chapter opener, uses a costing system with standard costs for direct
materials, direct labor, and
costing
minimize variances.”
Required
Write a short memo (no more than one page) to Jen Rubio and Steph Korey, Away’s co-founders, interpreting
these two comments in the context of their luggage business.
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