AC2200 TOPIC 5 Flashcards
are standard budgets the same as budgets
no but they are similar
standard is a …. amount
unit
budget is a ….. amount
total
who uses standard costs?
manufacturing, services, food and not for profits organizations
what is standard costs
they are benchmarks or “norms” for measuring performance.
It is the practice of estimating the expenses of a production process
what are the two approaches for setting standard costs?
engineering studies and historical records
how can standard costs be beneficial?
they can be a beneficial tool for mangers who are attempting to plan a more accurate budget. Having a more accurate budget could lead to a more profitable and efficient business.
what is a standard cost variance
it is the amount by which an actual cost differs from the standard cost
when is a standard cost variance unfavourable
when the actual cost exceed the standard cost
when is a standard cost variance favourable
when the actual cost does not exceed the standard cost (below expectations)
what two variances do we find in standard cost variance?
price variance and quantity variance
what is the price variance
the difference between the actual price and the standard price
what is the quantity variance
the difference between the actual quantity and the standard quantity
MPV formula
AQ (AP-SP)
LEV formula
SR (AH-SH)
LRV formula
AH(AR-SR)
MQV formula
SP(AQ-SQ)
what do you get with unfavourable efficiency variance
poorly trained workers
poor quality materials
poor supervision of workers
poorly maintained equipment
what are advantages of standard costs?
possible reduction in production costs
management by exception
improved cost control and performance evaluation
better information for planning and decision making
what are possible problems with standard costs
- timeliness issues
- end of the month rush
- misleading favourable variances
- overemphasis of meeting standards costs
- managerial caution requires
- isufficiency with just meeting standards cost
