2. Standard Costing - direct costs

Question 1

Budgetary control system

Answer 1

where performance is measured against budgets that have been prepared in advance

Question 2

Standard costing system.

Establishes in detail the standard cost of each component of a product so that a total cost can be calculated for that product.

Idea for situations where components are identical and manufacturing operations are repetitive

Answer 2

goes further than budgetory control system.

manufacturing orgs producing standardised products.

SCS differs from general budget setting (which is normally concerned with the costs of sections of the organisation) because it focuses on what the org produces (the cost units). Often used in conjunction with budgets.

Question 3

Advantages of standard costing

Answer 3

1. Help with decision making (eg pricing)
2. Assist planning (eg resources needed)
3. As mechanisn for monitoring and controlling costs. (eg analyse variances)

Question 4

Setting standards - types of standard

Answer 4

1. Ideal
2. Attainable
3. Basic

Question 5

Information sources for - amount of material

Answer 5

Information sources:

• Product specification (recipe)
• Technical data from material supplier (recommended usage)
• Historical usage data
• Observation of manufacture

Take into account:

• Estimates of wastage
• Quality of material
• Available production machinery and its performance.

Question 6

Information sources for - Cost of material

Answer 6

• Data from suppliers
• Historic records of prices paid
• Anticipated inflation (measured by general or specific price indices)
• Anticipated demand for scarce supplies.
• Production schedules and bulk buying policy
• seasonality of prices
• anticipated exchange rates

Question 7

Information sources for - Amount of labour time

Answer 7

• Historic data on output & efficiency
• Results from formal observations (work study or ‘time & motion’ study)
• anticipated changes in working practices or productivity levels
• level of training of employees to be used

Question 8

Information sources for - labour cost per unit of labour time

Answer 8

Sources of data:

• Current pay rates
• anticipated pay rises
• the expected effects of bonus schemes.

Take into account:

• Equivalent pay rates locally
• changes in legistlation (min wage)
• General or industry-specific wage cost indicess
• Grade of labour (or sub-cntractors) to be used.

Question 9

Reconciling variances… a reconciliation staement is sometimes called an operating statement

Answer 9

.can start with either standard or actual cost and will arrive, via the variances, at the other figure.