14-4: Helping Students See the ‘Big Picture of Variance Analysis by Neal
VanZante, Management Accounting Quarterly, Vol. 8, No. 3 (Spring 2007), pp.
39-47.
This paper presents two examples that can be used to reinforce concepts and procedures students learn
in text Chapters 14 through 16. The first example, Fernandez Company, can be used as a comprehensive
review of all three chapters; the second example, Roger Company, can be used in conjunction with
Chapter 14 if additional coverage of the joint price-quantity variance for direct materials (DM) is desired.
The Fernandez Company example requires students to first calculate the total flexible budget variance (in
operating income) for a period and then breakdown this variance into its constituent parts (selling price
variance, various cost variances, etc.).
Discussion Questions
1. What is meant by the total operating-income variance for a given accounting period? What alternative
names are there to describe this variance?
2. What would be a first-level breakdown of the total variance described above in (1)?
3. How can the total flexible-budget variance be broken down (i.e., what are the constituent parts of this
total variance)?
4. Explain the total sales volume variance for a period. How can this total variance be decomposed?
5. Explain the meaning of the joint price-quantity variance that is the basis for the discussion in the
Roger Company case.
14-4: Helping Students See the “Big Picture” of Variance Analysis
by Neal VanZante
Variances, or the differences between budgeted, planned, or standard amounts and the actual planned, or
standard amounts and the actual amounts incurred or sold, are a critical part of management accounting.
They give managers a basis for making informed decisions, yet many accounting students have difficulty
with variance analysis. Part of this difficulty may be caused by the manner in which this topic is typically
presented in cost/managerial accounting textbooks. Some textbook coverage is disjointed, with brief
mentions of flexible budget variances just prior to discussing manufacturing cost variances. Then, in a
much later chapter, sales variance analysis may be covered with little or no reference to the earlier
sections. Discussion of input mix and yield variances may be presented in appendices, if at all.
In addition to these disjointed presentations, textbook coverage is often heavily formula driven, offering
no alternative methodology. Although some textbooks provide overview tables (and problems) showing
the interrelationships of the variances in a particular chapter, comprehensive coverage of variances in the
entire textbook is lacking. In other words, there is typically no discussion of how variances covered in
earlier chapters may be incorporated with the variances covered in the later chapters. Thus, many students
fail to see how they are related, as well as the similarities between the computational aspects of some of
the variances.

In my senior/graduate-level Advanced Cost/Managerial Accounting course, I use two cases to help
students better understand variance analysis. The cases allow students to see the “big picture” without