Please help with this question Pathmark, Incorporated, uses a costing system wit
ID: 2582057 • Letter: P
Question
Please help with this question
Pathmark, Incorporated, uses a costing system with standard costs for direct materials, direct labor, and overhead costs. There are two comments frequently mentioned by managers at the company in relation to standard costing and variance analysis: "Variances are not explanations" and "Management's goal is not to minimize variances."
Imagine you are a member of a group of these managers discussing the comments at a roundtable training session being held at the company's annual managers retreat being held in Las Vegas. You have decided to comment on your interpretation of these phrases. Explain your point of view by using the correct terminology.
Explanation / Answer
Variance are not explainations. Variance analysis is the process of comparing the actual expenses and revenues during a certain period to the budgeted amounts for the same period . With Variance analysis we are able to determine the reasons why our actual results were differnt from the budgeted amounts. Knowing the reasons will enable us to focus our efforts on the areas that have been oprerating less efficiently than planned.
Role of the management is to minimize variances by comparision of the actual costs to the standard costs allows the company to analyze its actual costs and also enable the company to undertake some cost controls. A large variance between the actual cost and the standard costs alert management that something may be wrong and may need attention.