Final answer:
Standard costing involves setting predetermined costs while variance analysis compares actual costs to standard costs. Issues in standard-setting can impact management behavior.
Step-by-step explanation:
Standard costing is a technique used by businesses to set predetermined costs for their products or services. It involves establishing standard costs for various inputs such as materials, labor, and overhead, which serve as benchmarks for evaluating actual costs. Variance analysis, on the other hand, is the process of comparing actual costs against the standard costs to identify and understand the reasons for any deviations.
When it comes to standard-setting, there are several issues that can arise. One issue is the accuracy and relevance of the standards set. If the standards are too low or unrealistic, it can lead to underperformance and demotivate employees. On the other hand, if the standards are too high, it can create unrealistic expectations and put unnecessary pressure on employees.
Another issue is the impact of standards on management behavior. If the standards are perceived as unattainable or not aligned with the organization's goals, managers may be inclined to manipulate or ignore the standards to achieve desired results. This can undermine the effectiveness of standard costing and variance analysis as tools for performance measurement and improvement.