Definition of BenchmarkingBenchmarking is the systematic process of measuring an organization’s products, services, and processes against those of industry leaders or best-performing entities. This practice enables organizations to establish performance standards by assessing their operations relative to industry benchmarks or internal objectives. Benchmarking facilitates the identification of improvement areas and fosters a culture of continuous…
Variance analysis is a financial assessment tool used to evaluate the differences between planned and actual figures. It compares actual costs against projected costs for materials, labor, and overheads, identifying areas of overperformance or underperformance. This analysis facilitates better cost control and financial management. The accounting treatment of variances involves adjusting the cost of goods…
Businesses must establish predetermined costs to implement a standard costing system for materials, labor, and overhead. This system facilitates the tracking of actual costs, comparison with standard costs, variance analysis, and corrective action, ensuring continuous improvement. 1. Establishing Standard Costs To determine an achievable standard cost for each product, companies must consider the standard costs…
The profit-volume (P/V) ratio is a key metric for measuring a business’s profitability. It shows how a company’s profit changes in response to changes in sales volume. The P/V ratio is also known as the contribution ratio or marginal ratio. A company determines the selling price of its products after calculating of the fixed cost,…