Management Control and Audit Essay Example | Topics and Well Written Essays - 1500 words

Management Control and Audit - Essay Example Management accounting at present mainly includes managerial control techniques and auditing. In statistical concept and probability theory, the term ‘Variance’ is of great significance. Standard costing is used as a control technique. It refers to the preparation of standard costs and application of these in order to measure the variations from standard costs and analyze the causes of variations to maintain maximum efficiency in production. Such data is presented to management by means of variance analysis. Variances among price and efficiency are important in standard costing. Material price variance means, the part of material cost variance which is due to the difference between standard price and the actual price paid. Price variances will occur due to- Price variance is mainly related with the material concepts, where as efficiency variance is mostly related with labor concepts. Efficiency variance in relation to labor means, that portion of labor cost variance which arises due to the difference between standard hours specified for the actual output and the actual hours spent. Price variance is for the material purchased, and the efficiency variance is on for the direct labor. â€Å"Price variance is the difference between actual unit price and standard unit price, multiplied by actual quantity of input used. It reflects a change between the expected price and actual price of input. Price Variance = (Actual Price - Standard Price) x Actual Quantity where a positive result indicates an increase in costs (i.e., an unfavorable variance), while a negative result means a reduction in costs (i.e., a favorable variance).† (Business Definition For: Price variance. 2007). In case of an organization, there are mainly two types of control: budgetary control and financial control. Budget and budgetary control are related concepts in the theoretical aspects of Cost and