The relevance of standard costing and variance analysis in the manufacturing industry

Abstract

PURPOSE: The primary aim of this study is to establish the relevance of standard costing and standard variance analysis in the Maltese manufacturing industry. This study also shows how these two management accounting techniques are being used and their importance in the local manufacturing industry. DESIGN: Quantitative research was conducted by the researcher and a survey questionnaire was used to obtain primary data. Questionnaires were distributed electronically to 305 manufacturing companies. The results are based on 107 questionnaires and this sample size provides a response rate of 35%. FINDINGS: Standard costing and standard variance analysis are more relevant in medium and large companies rather than in micro and small firms. These management accounting techniques are highly used in the pharmaceutical industry and are still relevant even in a moderate or highly automated environment. CONCLUSION: The majority of users of standard costing and standard variance analysis consider these two management accounting techniques as important or very important to the company’s ongoing success. VALUE: This study will increase the knowledge on standard costing and standard variance analysis and how these techniques could be modified to reflect the modern manufacturing environment. One of the recommendations included in this dissertation is that more education and training should be provided to both business owners and management on various traditional and sophisticated management accounting techniques. Moreover, accountants should be more involved in the local manufacturing businesses and provide their assistance in the implementation of the necessary management accounting techniques.