Accounting for control Flashcards
Week 7
Standard budgets vs budgets
A standard is the expected cost for one unit, so will help create budgets. A budget is the expected cost for all units
Standard costs
Planned unit costs produced in a period. Used for planning labour, material etc. Are we off target etc?
Basic standard
DO NOT CHANGE over many years so monitor performance. They may not reflect current production context so no learning curve
Ideal standard
PAST PERFORMANCE and 100% efficiency, so no wastage, machine downtime. Used to continuously improve but assumes nothing will go wrong like a worker will never miss a day so wont reach their budget
Practical standard
ACHIEVABLE standards under efficient conditions. Normal machine downtime, some waste. Tight but realistic
Price standards
what do we think we can have a price for, taking account things we know we need to do. Assumes people buying for us are doing a good negotiation job
Quantity standards
Design specification tells you how its going to be made and what quantity of each material you need to use
Rate standards
what we think we can get our workers for, considering competitive rates and minimum wage (predetermined overhead rate)
Time standards
Watch workers to see how long it takes them to do something, then calculate how long to give them on making a product. However, if they know they are being watched they’ll perform quicker so making this product wont be that time
Base rate
the activity used to calculate the predetermined overhead rate
Variance
Variance is the difference between planned/budgeted and the actual cost incurred.
If its unfavourable= actual costs exceeds standard cost (adverse)
If its favourable= actual cost is less than standard cost, e.g. you paid less for materials then excpeted but does that mean less quality?
Static budget
budget for planned activity, but if actual is different for planned this budget will be misleading
static budget shows higher planned activity= variable costs lower
static budget shows lower planned activity then variable costs are higher
Variance analysis cycle
- Questions- Why is it more or less than expected
- Explanations, e.g. we used more materials
- Action- from managers
- Conduct change- e.g. change the materials quality
Queen enrico and cait
Price variance
Actual quality[what is should have cost](Actual price- what did it cost-standard price
Quantity variance (or usage variance)
Standard price(Actual quantity-standard quantity [should have used]