[7] ACCOUNTING FOR CONTROL Flashcards
Standard Costs:
What are they based on?
Used for?
What do they provide?
Based on carefully
predetermined amounts
Used for planning labour, material
and overhead requirements
The expected level
of performance
Benchmarks for
measuring performance
What is management by exception
Managers focus on quantities and costs
that exceed standards
Setting Direct Material Standards
x2 with egs
Price Standards: Final, delivered cost of materials,
net of discounts
Quantity Standards: Use product design specifications
Setting Direct labour Standards
x2
Rate Standards: Use wagesurveys and labour contracts
time standards: Use time and motion studies for each labour operation
Setting Variable overhead rates
x2
Rates Standard: The rate is the variable portion of the
predetermined overhead rate
Activity Standards: The activity is the base used to calculate the predetermined overhead
Whats the difference between a standard and a budget?
A standard is the expected cost for
one unit.
A budget is the expected cost for
all units.
What is a standard cost variance?
It is the amount by which an actual cost differs from the standard cost.
Variance Analysis Cycle [6]
Prepare standard cost performance report
Analyze variances
Identify Questions
Receive Explanations
Take corrective actions
prepare next period’s operations
Standard Cost Variances x2
Price Variances:The difference between
the actual price and the
standard price
Quantity Variances:The difference between
the actual quantity and
the standard quantity
How do u calculate Price variance?
[Actual Quantity x Standard Price] -
[Actual Quantity x Actual Price]
How do u calculate quantity variance?
[ Actual Quantity x Standard Price ] -
[Standard Quantity x Standard Price]
How are the Material variances
computed if the amount
purchased differs from
the amount used?
The price variance is
computed on the entire
quantity purchased
The quantity variance is
computed only on the
quantity used
Reasons for Unfavourable Efficiency Variance [5]
Poorly trained workers
Poor Quality Materials
Poor supervision of workers
Poorly maintained equipment
insufficient demand for the output of
the factory
If variable overhead is applied on the basis of direct labour hours, the labour efficiency and variable overhead efficiency variances will \_\_\_ \_\_\_\_ \_\_\_\_
move in tandem
