Ch2. Standard Costing And Variance Analysis Flashcards
- expected levels of performance established as a guide in making economic decisions.
- oftentimes quantitative for objectivity in measurement.
-serve as benchmarks for measuring performance.
Standards
what are the two standards
quantity and cost standards
indicate the qty of raw materials or labor time require to produce a unit of product or to provide services.
Quantity standards
indicate what the cost of the qty standards should be.
Cost standards
- 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.
Standards setting
Requires perfect performance with no allowance for waste, spoilage, machine breakdowns, and other interruptions.
Theoretical or ideal, or maximum efficiency standard
- attainable as they allow for normal machine downtimes, inefficiencies, wastage/spoilage, and other normal disturbances.
- normally used for product costing and other budgeting purposes.
Practical standards
two standards level
- Theoretical or ideal, or maximum efficiency standard
- Practical standards
- 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.
Standard Costs
should reflect the final, delivered cost of materials, net of any discount and inclusive of allowances for handling costs.
Standard Price Per Unit
should reflect the units of materials required to produce each unit of product, including allowances for unavoidable wastages, spoilage, and other normal inefficiencies.
Standard Quantity Per Unit
what are the two Materials Standards?
Standard Price Per Unit
Standard Quantity Per Unit
should include the wages, fringe benefits and other labor costs.
Standard Rate Per Hour
– 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.
Standard Time (Hours)
what are the two direct labor standards?
Standard Rate Per Hour
Standard Time (Hours)
- 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.
Variable Manufacturing Standards
- 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.
Fixed Manufacturing OH Standards
what are predetermined
amounts of standards and budgets?
- a standard is a unit amount
- a budget is a total amount
- 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
VARIANCE
-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.
VARIANCE ANALYSIS
PRODUCTION COSTS VARIANCES for Direct Materials
price and quantity
PRODUCTION COSTS VARIANCES for Direct Labor
rate and efficiency
PRODUCTION COSTS VARIANCES for Factory Overhead
controllable and volume
- it is 3 way analysis variance
- The third variance is “____ _____ _____” which is the product of difference in price and the difference in quantity.
joint materials variance
- 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).
joint labor variance
computation and analysis are the same as in direct labor, except that the rates to be used are the ___
VARIABLE FACTORY OH
Three way analysis is used when the production process involves combining or mixing several materials in varying proportions.
Materials Price, Mix & Yield Variance Analysis
Responsible for Materials Spending or Price Variance for Price, quality and quantity of materials purchased, delivery time
Purchasing Manager
Responsible for Materials Efficiency or Quantity Variances for Quality of materials, defective machines, unskilled workers, poor supervision
Production Manager
Responsible for Labor Spending or Rate Variance for Workers’ skill, overtime premiums, unforeseen increase on wage and benefits
Production Supervisor, Staff incharge of setting labor rates
Responsible for Labor Efficiency or Time Variance for Workers’ skill, imposition of stricter control measures in the production process
Production Manager
