What is the importance of reporting variances in standard costing systems?
The process of standard costing involves the establishment of standard costs and computation of actual cost and the comparison of actual costs and standard costs. The difference between actual costs and standard costs is known as variance. Merely, finding the variance does not solve the issue unless proper actions are taken accordingly. Keeping an eye on the standard costs and their variances keep the management informed of the effectiveness of the production process as well as the work of personals who are supervising the production process. Thus, reporting of variance becomes an important part in standard costing system as it contains the detailed analysis of variances, specifying the causes which lead to these variances which enable the management to take corrective actions in order to reduce variances.