Chapter 12 notes Flashcards
what are some causes of material variance
may be both internal and external
delivery method used
availability of quantity and cash discounts
quality of materials requested
who is investigated first when there are material variances
purchasing department
When is the purchasing department responsible for variances
if the factors that have made the variances were considered during setting the price standard
in material variances when would the purchasing department not be responsible
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
When would the production department be resonsponsible for material variances
if due to inexperience workers, faulty machines or carelessness
What are the causes of labour variances
- higher wages than expected
2. misallocation of workers
How are higher wages than expected in unions and non-unions
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)
Define the misallocation of workers
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
Who is generally responsible for labour price variances
production department
What does the labour quantity variance mean
relate to efficiency of workers
- cause of these usually can be traced to production department
What are the causes of labour quantity variance
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
What is a manufacturing overhead variance
standard predetermined overhead rate is used in setting the standard
- dividing budgeted overhead costs by an expected standard activity index (ie dir labour hours)
What are the causes of manufacturing overhead variances
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
all variances should be reported to
to reported levels of management asap so that corrective actions can be taken
variaince reports facility what
the principle of management by exception
- when using the variance reports, management normally looks for significant variances
What is the statement presentation for variances
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
statement variances can be on a CM format as well
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 incomefinancial statements what costing is used
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
when use a contribution margin format for variances
when it is necessary to analyze the overhead variances into variable and fixed components
Balance score card what are some non-financial measures may help management with what
in assessing performance and anticipated future results
What is the balance score popular for
popular tool for revaluating company performance
What are the 4 perspectives of the balance scorecard
- financial perspective
- Customer perspective
- internal process perspective
- learning and growth perspective
What is financial perspective
uses common financial measures such as ROI
What is customer perspective
evaluates price, quality and customer service
what is internal process perspective
evaluates product development, production and delivery
what is learning and growth perspective
evaluates employee skills and satisfaction, training sessions
give some examples of financial perspective
ROI net income credit rating share price profit per employee
give some examples of customer perspective
percentage of customers who would recommend the product customer retention response time per customer request brand recognition customer service expenses per customer
give some examples of internal process perspective
- percentage of defect - free products
- stockouts
- labour use rates
- waste reduction
- planning accuracy
what are some examples of learning and growth perspective
- percentage of employees leaving in less than one year
- number of cross trained employees
- ethics violations
- training hours
- reportable accidents
what are the objective with balance score card
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
what does the balance scorecard do? (4)
- employs both financial and non financial measures (ROI and employee turnover)
- creates links so that high level corporate goals can be communicated all the way down to the shop floor
- provides measurable objectives for such non-financial measures as product quality, rather than vague statements such as” we would like to improve quality”
- integrates all company’s goals into a single performance measurement system, so that too much weight will not be placed on any single goal
What is the flow of influence across a balance score card
learning and growth – internal process – customer – financial
What is standard cost accounting system
- double entry system
- uses standard costs for entries
- can be used with either job order cost or process cost systems
What are the two important assumptions with standard cost accounting system
- variances form standards will be recognized at the earliest opportunity
- the work in process account is maintained at standard cost
