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

•This resource provides an integrative approach to cost-system design choices.•Exposes students to actual, normal, and standard costing using a static data set.•Highlights the differences and similarities between costing alternatives.•Requires students to compute overhead variances and provide a memo to management.•Students perceive this resource as an effective learning tool.

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.