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Modern Watch Company: An instructional resource for presenting and learning actual, normal, and standard costing systems, and variable and fixed overhead variance analysis

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  • Farkas, Maia
  • Kersting, Lee
  • Stephens, William

Abstract

This paper presents an instructional resource that requires students to progress through three distinct costing approaches applied to a common data set: actual costing, normal costing, and standard costing. The resource is designed to allow students to better understand variable and fixed overhead variance analyses – in particular, the fixed overhead production volume variance. Students can complete the instructional resource either individually or in teams. The requirements of the resource give students the chance to defend a keep/drop decision by management, compare and contrast alternative costing systems, discuss some nuances across the costing systems, calculate variable overhead spending and efficiency variances as well as fixed overhead spending and production volume variances (along with a written memo to management explaining these variances), and discuss why predetermined overhead rates can make interim financial statements more reliable. Students perceived this resource as an effective learning tool that was easy to understand and that facilitated their understanding of costing systems, fixed overhead variance analysis, and the importance of predetermined overhead rates.

Suggested Citation

  • Farkas, Maia & Kersting, Lee & Stephens, William, 2016. "Modern Watch Company: An instructional resource for presenting and learning actual, normal, and standard costing systems, and variable and fixed overhead variance analysis," Journal of Accounting Education, Elsevier, vol. 35(C), pages 56-68.
    • Handle: RePEc:eee:joaced:v:35:y:2016:i:c:p:56-68
    DOI: 10.1016/j.jaccedu.2016.02.001
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    References listed on IDEAS

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    1. Snead, Kenneth & Stott, David & Garcia, Andy, 2010. "The causes of misapplied capacity related manufacturing costs and corresponding reporting implications: A conceptual perspective," Journal of Accounting Education, Elsevier, vol. 28(2), pages 85-102.
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    Cited by:

    1. Holmes, Amy F. & Rasmussen, Stephanie J., 2018. "Using Pinterest to stimulate student engagement, interest, and learning in managerial accounting courses," Journal of Accounting Education, Elsevier, vol. 43(C), pages 43-56.
    2. Ayres, Douglas & Stanfield, Jason, 2019. "Pulling it all together: ACME trailers, a costing case," Journal of Accounting Education, Elsevier, vol. 46(C), pages 72-88.
    3. Douglass, Ashley & Farías Martínez, Gabriela María & Holmes, Amy F., 2022. "Bringing COSO to life: Engaging students with real world examples of internal controls using digital storytelling," Journal of Accounting Education, Elsevier, vol. 58(C).

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