Chapter 23, Problem 18DQ

To determine

Introduction:

Management by exception:

Management by exception is the manager's technique to evaluate the business performance and finding out negative factors and working on them. Variance analysis is a part of the management by exception.

Standard Costs:

A Standard Cost is the expected amount of cost to be incurred. A standard cost is calculated on the basis of budgeted data and expected results.

Flexible Budget:

Flexible budget is prepared to find the standard revenues and costs at actual level of activity. Flexible budget is calculated using the actual level of activity and standard revenue and costs per activity. A Flexible budget shows the standard figures for the actual level of activity. A flexible budget is prepared to compare the actual figures with the standard figures for the same level of activity.

Variances Analysis:

A Variance analysis is comparing the actual and standard figures and finding the differences or variances.

The meaning of management by exception and how this concept is applied by managers to control costs using the standard costs.