Ch2. Standard Costing And Variance Analysis

Question 1

• expected levels of performance established as a guide in making economic decisions.
• oftentimes quantitative for objectivity in measurement.
  -serve as benchmarks for measuring performance.

Answer 1

Standards

Question 2

what are the two standards

Answer 2

quantity and cost standards

Question 3

indicate the qty of raw materials or labor time require to produce a unit of product or to provide services.

Answer 3

Quantity standards

Question 4

indicate what the cost of the qty standards should be.

Answer 4

Cost standards

Question 5

• a managerial prerogative.
• when developed with the participation of operating personnel and officers, standards become more reflective of the realities in the production line and other business operations.

Answer 5

Standards setting

Question 6

Requires perfect performance with no allowance for waste, spoilage, machine breakdowns, and other interruptions.

Answer 6

Theoretical or ideal, or maximum efficiency standard

Question 7

• attainable as they allow for normal machine downtimes, inefficiencies, wastage/spoilage, and other normal disturbances.
• normally used for product costing and other budgeting purposes.

Answer 7

Practical standards

Question 8

two standards level

Answer 8

1. Theoretical or ideal, or maximum efficiency standard
2. Practical standards

Question 9

• comprise of the standard quantity and the standard price.
• established with the collaboration of operating managers from various functional lines of operations: production, purchasing, HR, industrial engineering, accounting.

Answer 9

Standard Costs

Question 10

should reflect the final, delivered cost of materials, net of any discount and inclusive of allowances for handling costs.

Answer 10

Standard Price Per Unit

Question 11

should reflect the units of materials required to produce each unit of product, including allowances for unavoidable wastages, spoilage, and other normal inefficiencies.

Answer 11

Standard Quantity Per Unit

Question 12

what are the two Materials Standards?

Answer 12

Standard Price Per Unit
Standard Quantity Per Unit

Question 13

should include the wages, fringe benefits and other labor costs.

Answer 13

Standard Rate Per Hour

Question 14

– the amount of labor time (number of hours) required to produce each unit of product including allowances for employee rest period, personal needs and normal machine downtime.

Answer 14

Standard Time (Hours)

Question 15

what are the two direct labor standards?

Answer 15

Standard Rate Per Hour
Standard Time (Hours)

Question 16

• Computed in the same manner as the standards for labor costs are computed.
• The quantity and price factors used are time (hours) and variable overhead rate per hour.

Answer 16

Variable Manufacturing Standards

Question 17

• Usually expressed in terms of total figures.
• To set the standard rate for fixed overhead, the total cost is computed using the normal capacity level as the base
• The standard time for overhead is usually
  expressed in terms of direct labor hours or machine hours.

Answer 17

Fixed Manufacturing OH Standards

Question 18

what are predetermined
amounts of standards and budgets?

Answer 18

• a standard is a unit amount
• a budget is a total amount

Question 19

• The difference between actual cost and standard cost; it should be investigated and analyzed so it can be avoided in the future.
• If actual cost is greater than the standard, the variance is unfavorable, otherwise, it is favorable

Answer 19

VARIANCE

Question 20

-the accounting process that compares planned or projected performance in the business vs actual results.
-it is a quantitative tool that is intended to identify deviations and their underlying causes.

Answer 20

VARIANCE ANALYSIS

Question 21

PRODUCTION COSTS VARIANCES for Direct Materials

Answer 21

price and quantity

Question 22

PRODUCTION COSTS VARIANCES for Direct Labor

Answer 22

rate and efficiency

Question 23

PRODUCTION COSTS VARIANCES for Factory Overhead

Answer 23

controllable and volume

Question 24

• it is 3 way analysis variance
• The third variance is “____ _____ _____” which is the product of difference in price and the difference in quantity.

Answer 24

joint materials variance

Question 25

• it is 3 way analysis variance
• The third variance is “____ _____ ____” which is the product of difference in rate and the difference in time (labor hours).

Answer 25

joint labor variance

Question 26

computation and analysis are the same as in direct labor, except that the rates to be used are the variable factory overhead rates

Answer 26

VARIABLE FACTORY OH

Question 27

Three way analysis is used when the production process involves combining or mixing several materials in varying proportions.

Answer 27

Materials Price, Mix & Yield Variance Analysis

Question 28

Responsible for Materials Spending or Price Variance for Price, quality and quantity of materials purchased, delivery time

Answer 28

Purchasing Manager

Question 29

Responsible for Materials Efficiency or Quantity Variances for Quality of materials, defective machines, unskilled workers, poor supervision

Answer 29

Production Manager

Question 30

Responsible for Labor Spending or Rate Variance for Workers’ skill, overtime premiums, unforeseen increase on wage and benefits

Answer 30

Production Supervisor, Staff incharge of setting labor rates

Question 31

Responsible for Labor Efficiency or Time Variance for Workers’ skill, imposition of stricter control measures in the production process

Answer 31

Production Manager