From the perspective of the firm, one technique of controlling costs is to compare the budgeted vs actual costs. All differences are considered budget variances. As mentioned, these break out into quality and price variances for variable production costs and standards are derived between both.
Of these two, quality standards formulate how much of the variable inputs must be used per unit of output. The quality variance is the difference from the actual quantity of inputs at price and the quantity of inputs for actual output at price.
On the other hand, the price variance is the difference between the actual and standard unit price of an input multiplied by the number of inputs used.
Control managers have for both quantity and price are from different departments. Quantity variance is more useful for control purposes because production/manufacturing has more ability to manage levels of output. The price variance, in my opinion, uses the number of inputs in the formula, which to me, means that quantity variances need to be monitored more closely to control overall budget accuracy.
Resources
Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2018). Managerial accounting: The cornerstone of business decision making (7th ed.). Boston, MA: Cengage Learning.
Commenti