Question

What are the relations among standard costs, flexible budgets, variance analysis, and management by exception?

Answer 1

Please find below points for relationship :

Standard Cost :

An estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions.

Standard costs enables a manager that this cost can be used as target costs (or basis for comparison with the actual costs), and are developed from historical data analysis or from time and motion studies. They almost always vary from actual costs, because every situation has its share of unpredictable factors. Also called normal cost.

Flexible Budget :

A flexible-budget analysisenablesa manager todistinguishhow much of the difference between an actual result anda budgeted amountisdue to(a) thedifference between actual and budgeted output levels, and (b) the difference between actual and budgeted selling prices, variable costs, and fixed costs

Variance Analysis :

Variance analysis helps managers to identify areas not operating as expected. [The larger the variance, the more likely an area is not operating as expected.] So, managers should come to know that which are the areas in which there needs to keep special attention on the basis of their Variance amount.

Management by exception :

Management by exception is the practice of concentrating on area snot operating as expected and giving less attention to areas operating as expected