**Search for the following concepts when looking for appropriate resources:**

**�Variance analysis in cost accounting�Budget versus actual gross margin�Types of cost variance�Division cost and variance analysis**

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ANNOTATED BIBLIOGRAPHY 2

Annotated Bibliography

DRURY, C. M. (2013). Management and cost accounting. Springer.

In accounting, the term variance analysis is a result of the relationship between costs of

elements. To understand this term we need to find the meaning of the components of the term

variance as used in accounting. Standard cost is defined as the pre-determined cost of a certain

element of production. A standard cost is actually referred to as what an item must cost under

given circumstances. The term standard costing on the other hand is different from the term

standard cost. While standard cost is the cost of an item under a given circumstance, standard

costing is the concept in accounting that is used to determine the standard for every element of

cost. These costs predetermined by standard costing are compared with the actual costs of the

elements and the deviation is referred to as variance. Therefore, Variance is defined as the

particular difference between the actual cost and the standard cost for each element in a

particular period. Variance analysis on the other hand is defined as the particular process

through which variance is subdivided in such a way it enables the management to assign

responsibility for off-standard performance. Therefore, the genesis of the term variance has

been defined explicitly through first the definition of the components of the term itself, then the

term variance and lastly variance analysis.

Datar, S. M., Rajan, M. V., Wynder, M., Maguire, W., & Tan, R. (2013). Cost accounting: a

managerial emphasis. Pearson Higher Education AU.

Actual gross margin is defined as the difference between what is left of the selling price

of a product after subtracting all the variable and not fixed costs involved in the sale of a

products. In simple words, actual gross margin is the revenue received from the sale of an item

minus the cost of the goods sold. In the business industries, budgets are the primary planning

ANNOTATED BIBLIOGRAPHY 3

tools for any business. However, if the budget does not clearly outline the gross margin, then

the approximation in the budget are not realistic and the business will fail. It will fail either

from the wrong approximation of the prices of products and the wrong approximation of the

money needed to start a business. This makes these business have prices of products that are

too low in the cost of running the business becomes too high. Eventually, the business that

appeared to be thriving fails. Hence, the significance of the gross margin which essentially

shows the profit to be earned from selling a given product, is very crucial to a budget.

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

From the definition of variance, we get three components of the production process that

determine the type of cost variance. Two of the three components which are self-explained

include material and labour. These two components result to the material cots variance and

labour cost variance. The third component is the overhead cost. The overhead costs represent

all the other costs that are not primal to the production process. Material cost variance is the

difference between the standard material cost and the actual material cost. The difference

between the two costs gives a deviation known as material cost deviation. Labour cost variance,

is the difference between the standard wages that are specified and the actual wages that are

paid. The difference between the wages specified and the wages aid is what gives birth to the

variance known as labour cost variance lastly, the overhead cost variance refers to the

difference between actual overhead cost incurred and the standard overhead cost absorbed. The

components of the overhead costs include the actual overhead, standard hourly rate and

standard hours of actual production. The three types of cost variance are according to the cost

components of the production process.

ANNOTATED BIBLIOGRAPHY 4

Chidyausiku, C., Swanepoel, T., Barnard, J., De Jongh, T., Bibbey, F., & Kauta, L. (2015).

Cost and managerial accounting control.

In managerial accounting, the terms division cost and variance analysis affect ad

influence one another. Furthermore, one is used to determine the other term. Thus their

relationship is quite significant. To explicitly understand the implicit meaning of these two

terms. We need to define them and come up with the correct analysis of what they mean and

refer to as afar as accounting is concerned. Variance in managerial accounting refers to the

critical investigation of variances to financial performance from the standards identified in the

company’s or organizational budget. Essentially, variance analysis helps a great deal in

budgeting for the right amount of specific costs in the right way. It defined whether the

business will be profitable by a certain gross margin or not. Therefore, variance analysis is a

very significant to managerial accounting. In accounting the division cost is calculated as the

difference between the actual profit and the standard profit for what the business will achieve

when some of the products are divided to the amounts that will fit the approximated cost of the

budget. This element of costing is very dependent on the variance analysis of the various

components of the cost variances. Hence, the division cost is determined only when the

variance cost is determined. However, the two components seem to be proportional. In a way

that when division cost is varied depending on the cost variance of a given component of

production.

ANNOTATED BIBLIOGRAPHY 5

References

Chidyausiku, C., Swanepoel, T., Barnard, J., De Jongh, T., Bibbey, F., & Kauta, L. (2015).

Cost and managerial accounting control.

Datar, S. M., Rajan, M. V., Wynder, M., Maguire, W., & Tan, R. (2013). Cost accounting: a

managerial emphasis. Pearson Higher Education AU.

DRURY, C. M. (2013). Management and cost accounting. Springer.

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.