C:Performance Flashcards
What is standard costing?
compare predetermined costs of products/services to actual costs incurred
What is a standard cost?
the predetermined cost of a product/service
-based on either absorption costing or marginal costing
What is a variance?
the difference between the standard cost and actual cost
What is a standard?
‘benchmark measurement of resource usage or revenue or profit generation, set in defined conditions’
How is standard profit per unit calculated?
s.p - cost in absorption costing
What is standard contribution per unit?
s.p - variable costs (marginal costing)
What are the 4 main types of standard?
ideal: 100% perfect condition 100% of the time, no waste
basic: long term standards, unchanged over years, shows trends
current: based on current working conditions, useful when anomalies arise
attainable: based on efficient but not perfect operating conditions, includes allowances, most popular, only motivational one
What is variance analysis?
‘evaluation of performance by means of variances, whose timely reporting should maximise the opportunity for managerial action’
-process by which the total difference between actual cost and standard is broken down into its different elements
What is a favourable variance?
when actuals are better than expected
How is budgetary control different from standard costing and variance analysis?
Budget control
- controlling total costs across an area of responsibility
- more flexible and can be used across variety of activities
- does not provide basis for measuring efficiency
- operates outside accounting systems
SC and VA
- unit costs
- standardised expectations
- provides basis for measuring efficiency
- integrated with actual accounting systems
What is a sales variance?
difference between:
- actual and standard sales prices
- budgeted and actual sales volumes (measured in profit/contribution/revenue)
What is a sales price variance?
effect on profit of a ‘change in revenue caused by the actual selling prices differing from the budgeted’
How is sales price variance calculated?
standard selling price x actual number of units sold
actual selling price x actual number of units sold
=>(actual - standard) x actual units sold
-favourable if above 0
What is the sales volume variance?
measured the effect on contribution/profit of not achieving the budgeted volume of sales
-difference between actual and budgeted sales volume valued at either standard profit (ABD) or standard contribution (marginal)
How is sales volume variance calculated?
actual sales volume - budgeted sales volume
-favourable is positive
How is sales volume variance contribution calculated?
(actual sales volume - budgeted sales volume) x standard contribution p.u
-favourable is positive
What are the potential causes of sales price variances?
1) larger discounts offered to persuade bulk buying
2) lower discounts due to strength of demand
3) effect of low-price offers due to marketing campaign
4) market conditions forcing industry wide price change
What are the potential causes of sales volume variances?
1) successful/unsuccessful direct selling efforts
2) successful/unsuccessful marketing efforts
3) unexpected changed in customer needs/buying habits
4) failure to satisfy demand due to production difficulties
5) Higher demand due to a cut in selling prices, or lower demand due to an increase in sales prices
What are the 3 types of direct material cost variances?
DM total variance split into:
DM price variance: paying more/less for materials
DM material usage variance:using more of less for actual output
What is direct material price variance?
difference between
- actual price of purchased material
- their standard cost
What is direct material usage variance?
measures efficiency in the use of material, by comparing standard material usage for actual production with actual material used, the difference is values at standard cost
How is direct material price variance calculated?
difference between:
(standard purchase price per kg or per time (per litre for liquids)
-actual purchase price)
x actual quantity used
How is direct material usage variance calculated?
(standard quantity for actual production
- actual quantity used)
x standard purchase price
What are the potential causes of material price variances?
1) using a different supplier who is cheaper/more expensive
2) bulk buying or buying smaller quantity, losing discount
3) unexpected increase in prices charged by supplier
4) efficient/inefficient buying procedures
5) unexpected buying costs, such as high delivery charged
6) a change in material quality, resulting in either higher or lower purchase prices
What are the potential causes of material usage variances?
1) a higher than/lower than expected rate of scrap or waste
2) using a difference quality or material affecting wastage
3) defective materials
4) better quality control
5) more efficient work procedures, resulting in better material usage rates
6) changing the labour mix which impacts on wastage of different types of labour make more/less errors
7) changing the materials mix to obtain a more expensive/less expensive mix than the standard
What are the 4 types of direct labour cost variances?
DL total variance split into
- DL labour rate variance
- DL efficiency variance
Idle time variance
What is fixed production overhead total variance?
difference between standard FOH cost absorbed and the actual fixed production overheads incurred
-due to expenditure, efficiency or capacity
AOxFO - actuals
What is over/under absorption?
overabsord: F = standard > actual
underabsorb: A = standard < actual
Fixed OH volume variance?
(AO-BO) x FOH per unit
due to different in output
-can split into efficiency and capacity
What is the fixed OH expenditure variance?
budgeted overhead - actual overhead
What is the fixed overhead capacity variance?
measures whether workforce worked more or less than budgeted for period
AH x FO ph - budgeted expenditure
What is the fixed OH efficiency variance?
whether workforce took more or less time than standard to produce output
-(SH-AH) x FO ph
What is the sales mix variance?
indicates the effect on profit of changing the mix of actual sales from the standard mix. A Sales Mix variance can be calculated in one of two ways :
(a) The difference between the actual total quantity sold in the standard mix and the actual quantities sold, valued at the standard profit per unit;
(b) The difference between the actual sales and budgeted sales, valued at the standard profit per unit less the budgeted weighted average profit per unit.
What is the sales quantity variance?
indicates the effect on profit of selling a different total quantity from the budgeted total quantity
How can you break down the sales volume variance?
sales mix + sales quantity variances
What is customer lifetime value?
Difficult to measure due to large amounts fo data needed
- need average purchase value x average purchase frequency rate = customer value
- how profitable mattress is in long run i.e aveage amount of money we can make out of a customer
What is ROCE?
return on capital employed
Divisional operating profit as percentage of total assets less TP
- compared against target percentage
- costs and revenues traceable to division
- with high ROCE, managers might reject projects out fof fear
What are some KPIs for operations?
% on time delivery to customer % customer orders fulfilled % defect rate (supplies and customer orders) % wastage rate queuing costs waiting times quality costs prevention costs detection costs internal failure costs external failure costs labour utilisation rate asset utilisation rate warehousing costs transport costs working capital ratios
What are some KPIs for overall sales and marketing activity?
growth in sales volume/revenue market share customer retention rate cost of customer acquisition marketing spend per customer CLV new customer conversion customer visit vs conversion %
What are some promotional KPIs?
promotion cost awareness levels website traffic to conversion % social media reach team response times email marketing performance
What are some product/service sales KPIs?
product development time
product lie-cycle costs
repurchase rate
brand value
What are some pricing or place related KPIs in sales?
price relative to industry
price EOD
transport costs
storage costs
What are some recruitment KPIs?
cost per hire
selection method conversion rate
time to fill position
female to male ratio
Training and development KPIs?
training and development costs
impact of training on existing KPIs
training feedback
Performance management KPIs?
turnover rate
employee absenteeism
employee productivity
employee satisfaction scores
Reward systems KPIs?
cost of rewards
competitiveness of reward systems
adherence to laws and regulations
What are some IT KPIs?
ticket response rates resolution rates system downtime customer feedback/experience IT spend per employee
