Costing Systems & Variance Analyses at the Carpenter & Millbridge Ltd. Welding Alloys Business Unit - a case study -

This case study illustrates how standard or traditional costing systems can reveal information that e.g. ABC methods would reveal, if appropriate variances are calculated. Variance analysis on disaggregated and timely information not only allows for timely corrective action, but it can also determine how e.g. set-up time related to smaller batches should be absorbed. Variance analysis could also indicate whether an alternative raw material is economically feasible or how a product’s cost might reflect the use of alternate production facilities. Whereas much of such information would be translated into cost drivers when applying ABC, extended variance analysis could also bring this information to the surface in a “traditional” costing system.