Variance analysis is an essential phenomenon in managerial accounting since it offers many benefits. In the video by SusanCrosson (2007), the presenter mentions that the reasons for using this analysis are that it leads to better management and allows managers to ask more appropriate questions. These questions should demonstrate why variances occur, which leads to better understanding and control over a situation. I can offer a few arguments to explain that this analysis can help managers make more informed decisions. Firstly, variance analysis can reveal that an organization fails to achieve the expected goals, which forces managers to make decisions to improve the situation. Secondly, the given approach is practical since it allows one to manage risks efficiently. It is so because this analysis can introduce controllable and uncontrollable variances, and this information helps choose suitable responses when it is possible to mitigate threats.
Furthermore, Standard Costing is another essential phenomenon that can lead to better planning. Since SusanCrosson (2007) states that 95% of businesses rely on this approach, it is necessary to explain how it can lead to better decision-making. On the one hand, this strategy allows managers to calculate standard costs and compare them to actual ones. If this process discovers a variance between the two values, which happens when actual costs exceed standard ones, managers should investigate why the variable occurred and how to overcome it. On the other hand, calculating standard costs means that managers and organizations can deal with predetermined expenses. As a result, this information can be used for further planning and budgeting based on the calculated estimates. Managers can use this approach to identify whether it is reasonable and profitable to introduce any changes. Thus, the two examples have demonstrated that Standard Costing can lead to improved decision making.
Reference
SusanCrosson. (2007). Standard costing 6 recap variances [Video]. YouTube.