8 - Standard costing

Question 1

standard cost definition

Answer 1

an estimated unit cost, prepared in advance an calculated from management expectations of efficiency, expected price and budgeted costs/activity

Question 2

management by exception

Answer 2

concentrating on activities that require attention and ignoring those which appear to be conforming to expectations

Question 3

what is standard full production cost made up of

Answer 3

direct materials
direct labour
standard direct cost
variable production overhead
standard variable cost of production
fixed production overhead

Question 4

what are the standard bases

Answer 4

IDEAL - perfection, demotivating, difficult to achieve
ATTAINABLE - practically possible, motivates employees
CURRENT - based on current performance, can lead to underperformance
BASIC - unchanged over time, outdated, to see trends

Question 5

advantages of standard setting

Answer 5

• facilitates budgetary control
• more accurate budgeting
• helps performance measurement
• helps target and price setting
• helps bookkeeping

Question 6

disadvantages of standard setting

Answer 6

• hard to accurately forecast
• time consuming and costly
• regular revision required
• demotivating if wrong
• not suitable for homogenous output
• not focused on continuous improvement

Question 7

what is the standard hour

Answer 7

the amount of work achievable, at the expected level of efficiency, in an hour

Question 8

wastage and losses formula

Answer 8

amount subject to waste x 100% / 100% - x%

x% = amount of waste

Question 9

remuneration methods

Answer 9

1. TIME BASED SYSTEM
   - paid for hours worked
   - overtime premium = extra rate over the basic hours
   - quality > quantity
2. PIECEWORK SYSTEM
   - paid per unit of output
   - incentive and bonus schemes to encourage
   - quantity > quality