Chapter 12 notes

Question 1

what are some causes of material variance

Answer 1

may be both internal and external
delivery method used
availability of quantity and cash discounts
quality of materials requested

Question 2

who is investigated first when there are material variances

Answer 2

purchasing department

Question 3

When is the purchasing department responsible for variances

Answer 3

if the factors that have made the variances were considered during setting the price standard

Question 4

in material variances when would the purchasing department not be responsible

Answer 4

when it is beyond their control
such as
prices rise quicker than expected
maybe production department is responsible for the variance
- rush orders had to pay higher price for materials

Question 5

When would the production department be resonsponsible for material variances

Answer 5

if due to inexperience workers, faulty machines or carelessness

Question 6

What are the causes of labour variances

Answer 6

1. higher wages than expected

2. misallocation of workers

Question 7

How are higher wages than expected in unions and non-unions

Answer 7

unions - there should not be many labour price variances
- non-union - much higher likeliness of such variances (the manger who authorizes the wage increase is responsible for the variance)

Question 8

Define the misallocation of workers

Answer 8

using skilled workers instead of unskilled workers and vise versa

• use of an inexperienced worker instead of an experienced worker would result in a favorable price variance

Question 9

Who is generally responsible for labour price variances

Answer 9

production department

Question 10

What does the labour quantity variance mean

Answer 10

relate to efficiency of workers

- cause of these usually can be traced to production department

Question 11

What are the causes of labour quantity variance

Answer 11

poor training, worker fatigue, faulty machinery, or carelessness
- responsibility of production department

unless the causes of excess time is due to inferior materials - production department not responsible - likely purchasing

Question 12

What is a manufacturing overhead variance

Answer 12

standard predetermined overhead rate is used in setting the standard
- dividing budgeted overhead costs by an expected standard activity index (ie dir labour hours)

Question 13

What are the causes of manufacturing overhead variances

Answer 13

controllable variance

• relates to variable Man. costs and usually is the responsibility of production department
• may result from either
  a) higher than expected use of indirect materials, indirect labour or supplies or
  b) increases in indirect man. costs such as fuel

Volume Variance
- may be the responsibility of production department
- inefficient use of DL hours or
may come form outside the production department
- lack of sales orders

Question 14

all variances should be reported to

Answer 14

to reported levels of management asap so that corrective actions can be taken

Question 15

variaince reports facility what

Answer 15

the principle of management by exception

- when using the variance reports, management normally looks for significant variances

Question 16

What is the statement presentation for variances

Answer 16

income statements are prepared for management using a standard cost accounting system

 - COGS is stated at the standard cost and variances are disclosed separately 
- inventories 
          - may be reported at standard costs when there are no significant variances between standard and actual costs
          - if there are significant differences inventories and COGS are reported at actual costs

Question 17

statement variances can be on a CM format as well

Answer 17

sales
cogs (at standard) 
gross profit (at standard) 
variances unfavorable 
    Materials price
    materials quantity 
     labour price 
     labour quantity 
     variable Overhead budget (spending and efficiency} 
Fixed overhead spending (budget) variance 
    overhead volume
total variance unfavorable 
gross profit actual 
selling and admin exp
net income

Question 18

financial statements what costing is used

Answer 18

standard costs may be used for external and internal reports
costing inventories using standard cost is consistent with GAAP when there are no significant differences between actual and standard costs

Question 19

when use a contribution margin format for variances

Answer 19

when it is necessary to analyze the overhead variances into variable and fixed components

Question 20

Balance score card what are some non-financial measures may help management with what

Answer 20

in assessing performance and anticipated future results

Question 21

What is the balance score popular for

Answer 21

popular tool for revaluating company performance

Question 22

What are the 4 perspectives of the balance scorecard

Answer 22

1. financial perspective
2. Customer perspective
3. internal process perspective
4. learning and growth perspective

Question 23

What is financial perspective

Answer 23

uses common financial measures such as ROI

Question 24

What is customer perspective

Answer 24

evaluates price, quality and customer service

Question 25

what is internal process perspective

Answer 25

evaluates product development, production and delivery

Question 26

what is learning and growth perspective

Answer 26

evaluates employee skills and satisfaction, training sessions

Question 27

give some examples of financial perspective

Answer 27

ROI 
net income 
credit rating 
share price
profit per employee

Question 28

give some examples of customer perspective

Answer 28

percentage of customers who would recommend the product 
customer retention
response time per customer request 
brand recognition 
customer service expenses per customer

Question 29

give some examples of internal process perspective

Answer 29

• percentage of defect - free products
• stockouts
• labour use rates
• waste reduction
• planning accuracy

Question 30

what are some examples of learning and growth perspective

Answer 30

• percentage of employees leaving in less than one year
• number of cross trained employees
• ethics violations
• training hours
• reportable accidents

Question 31

what are the objective with balance score card

Answer 31

objectives are linked across perspectives in order to achieve company goals

• financial objectives are normally set first
• objectives for other perspective are set in order to accomplish the financial objectives

Question 32

what does the balance scorecard do? (4)

Answer 32

1. employs both financial and non financial measures (ROI and employee turnover)
2. creates links so that high level corporate goals can be communicated all the way down to the shop floor
3. provides measurable objectives for such non-financial measures as product quality, rather than vague statements such as” we would like to improve quality”
4. integrates all company’s goals into a single performance measurement system, so that too much weight will not be placed on any single goal

Question 33

What is the flow of influence across a balance score card

Answer 33

learning and growth – internal process – customer – financial

Question 34

What is standard cost accounting system

Answer 34

• double entry system
• uses standard costs for entries
• can be used with either job order cost or process cost systems

Question 35

What are the two important assumptions with standard cost accounting system

Answer 35

1. variances form standards will be recognized at the earliest opportunity
2. the work in process account is maintained at standard cost