This episode of our podcast explains standard costing, a method of budgeting and cost control. It details how to develop standard costs for materials, labor, and overhead, and then compute and evaluate variances—the differences between standard and actual costs—for each. The chapter uses numerous examples and formulas to illustrate calculations and interpretations of variances, highlighting potential causes and solutions for both favorable and unfavorable outcomes. Finally, we discuss the uses and ethical considerations of variance analysis in managerial decision-making.

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