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Comm 305: Managerial Accounting > chapter 12: standard costs and balance > Flashcards

chapter 12: standard costs and balance Flashcards

1
Q

standards that are imposed by government agencies

A

regulations

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2
Q

standard costs

A

predetermined unit costs that are used as measures of performance

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3
Q

Advantages of standard costs

A

facilitate management planning

promote greater economy by making employees more cost-conscious

help set selling prices

contribute to management control by providing basis for evaluation and cost control

help highlight variances in management by exceptions

simplify costing of inventories and reduce clerical costs

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4
Q

when are the advantages of standard costs available?

A

when standard costs are carefully established and prudently used

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5
Q

consequences of using standards only as a way of placing blame¿

what is done to counteract this?

A

can have a negative effect on managers and employees

many companies offer money incentives to employees who meet their standards to minimize this effect

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6
Q

the difference between standards and budgets

A

in the way the terms are expressed

A standard is a unit amount

A budget is a total amount

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7
Q

true or false

A standard is concerned with each individual cost component that makes up the entire budget

A

true

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8
Q

how does the managerial accountant provide important input for management in the standard-setting process?

A

by accumulating historical cost data

by knowing how costs respond to changes in activity levels

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9
Q

what do we require from standard costs to be effective in controlling costs?

A

standard costs need to be up to date at all times

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10
Q

ideal standards

A

the term for optimum levels of performance under perfect operating conditions

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11
Q

normal standards

A

efficient levels of performance that are attainable under expected operating conditions

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12
Q

are ideal standards or normal standards used more frequently?

why?

A

normal standards

most managers believe that ideal standards lower the morale of the entire workforce because they are so difficult, if not impossible, to meet

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13
Q

what is necessary to establish the standard cost of producing a product?

A

we need to establish standards for each manufacturing cost element (DM, DL, MOH)

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14
Q

what is the standard for each manufacturing element determined by?

A

the standard price to be paid and the standard quantity to be used

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15
Q

the direct materials price standard

what is it based on?

A

the cost per unit of direct materials that should be incurred

should be based on the purchasing department’s best estimate of the cost of raw materials

includes related costs, such as receiving, storing, and handling the material

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16
Q

The direct materials quantity standard

what us included

A

quantity of direct materials that should be used per unit of finished goods

expressed as a physical measure, such as kilograms, barrels, or litres

management should consider both the quality and quantity of materials that are required to manufacture the product

should include allowances (extra amounts) for unavoidable waste and normal spoilage

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17
Q

The standard direct materials cost per unit

A

the standard direct materials price · the standard direct materials quantity

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18
Q

The direct labour price standard

what is is based on?

what does it include?

A

also called the direct labour rate standard

the rate per hour that should be incurred for direct labour

based on current wage rates

adjusted for expected changes, such as cost of living adjustments (COLAs)

generally includes employer payroll taxes and benefits

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19
Q

The direct labour quantity standard

A

also called the direct labour efficiency standard

the time that should be required to make one unit of the product

includes rest periods, cleanup, machine set-up, and machine downtime

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20
Q

The standard direct labour cost per unit

A

standard direct labour rate · the standard direct labour hours

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21
Q

standard predetermined overhead rate

A

determined by dividing budgeted overhead costs by an expected standard activity index

The standard manufacturing overhead rate per unit

= the predetermined overhead rate · the activity index quantity standard

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22
Q

Normal capacity

A

the average activity output that a company should experience over the long run

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23
Q

Total Standard Cost Per Unit

A

the sum of the standard costs of direct materials, direct labour, and manufacturing overhead

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24
Q

A standard cost card

A

the basis for determining variances from standards

prepared for each product after finding the total standard cost per unit

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25
Q

the differences between total actual costs and total standard costs

A

Variances

variances can also indicate differences between total budgeted costs and total actual costs (not crucial for this chapter)

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26
Q

unfavorable variance

what does it suggest?

A

When actual costs are higher than standard costs

It suggests that too much was paid for one or more of the manufacturing cost elements or that the elements were used inefficiently

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27
Q

favorable variance

what does it suggest?

A

when actual costs are less than standard costs

It suggests there is efficient management of manufacturing costs and efficient use of direct materials, direct labour, and manufacturing overhead

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28
Q

what is a hidden bad factor that could lead to a favorable variance?

A

could be obtained by using inferior materials

A variance is not favourable if quality control standards have been sacrificed

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29
Q

the variance is expressed in total dollars or a per-unit basis?

A

total dollars

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30
Q

two ways to calculate the Total Variance

A

Actual Costs - Standard Costs

Materials Variance + Labour Variance + Overhead Variance

= Total Variance

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31
Q

what do you need to calculate the Materials Variance and Labour Variance?

A

Price Variance for each

–> we hold the quantity constant (at the actual quantity) but vary the price (actual versus standard)

Quantity Variance for each

–> we hold the price constant (at the standard price) but vary the quantity (actual versus standard)

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32
Q

total direct materials budget variance (TDMBV)

A

the difference between the amount paid (actual quantity times actual price) and the amount that should have been paid based on standards (standard quantity times standard price of materials)

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33
Q

The total materials variance could be caused by what?

A

differences in the price paid for the materials or by differences in the amount of materials used

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34
Q

formula for total materials variance

A

materials price variance + materials quantity variance

= total materials variance¡

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35
Q

materials price variance

A

the difference between the actual price and the standard price

Total Actual Quantities (TAQ) · Actual Price (AP) - Total Actual Quantities (TAQ) · Standard Price (SP)

= Materials Price Variance (MPV)

36
Q

materials quantity variance

A

results from differences between the amount of material actually used and the amount that should have been used

the difference between the standard cost of the actual quantity (actual quantity · standard price) and the standard cost of the amount that should have been used (standard quantity · standard price for materials)

Total Actual Quantities (TAQ) · Standard Price (SP) - Total Standard Quantities (TSQA) · Standard Price (SP)

= Materials Price Variance (MQV)

37
Q

what is the first step when using the matrix to find variances?

A

the formulas for each cost element are calculated

38
Q

The investigation of a materials price variance usually begins where?

A

in the purchasing department

39
Q

when is the purchasing department responsible for any materials price variances?

A

when the delivery method used, the availability of quantity and cash discounts, and the quality of the materials requested have been considered in setting the price standard and there is still variances

40
Q

when are material price variances out of the purchasing department’s control?

A

when prices rise faster than expected

when there are some actions by groups that the company cannot control

sometimes, a production department may be responsible for the price variance

41
Q

The starting point for determining the cause(s) of an unfavorable materials quantity variance

A

the production department

42
Q

when is the production department responsible for any materials quantity variances?

A

inexperienced workers

faulty machinery

carelessness

43
Q

when when is the purchasing department responsible for any materials quantity variances?

A

when the the materials obtained by the purchasing department were of inferior quality

44
Q

Formula for total direct labour budget variance (TDLBV)

A

the difference between the amount actually paid for labour (actual hours · actual rate) and the amount that should have been paid (standard hours · standard rate for labour)

Total Actual Hours (TAH) · Actual Rate (AR) - Total Standard hours Allowed (TSHA) · Standard Rate (SR)

45
Q

Components of total labour variance

A

Labour Price Variance + Labour Quantity Variance

= Total Labour Variance

46
Q

Labour Price Variance (LPV)

A

results from the difference between the rate paid to workers and the rate that was supposed to be paid

Total Actual Hours (TAH) · Actual Rate (AR) - Total Actual Hours (TAH) · Standard Rate (SR)

= Labour Price Variance (LPV)

or

multiplying actual hours worked by the difference between the actual pay rate and the standard pay rate

TAH × (AR − SR) = LPV

47
Q

The labour quantity variance

A

results from the difference between the actual number of labour hours and the number of hours that should have been worked for the quantity produced

Total Actual Hours (TAH) · Standard Rate (SR) - Total Standard Hours Allowed (TSHA) · Standard Rate (SR)

= Labour Quantity Variance (LQV)

or

multiply the standard rate by the difference between the total actual hours worked and total standard hours allowed

SR · (TAH - SH) = LQV

48
Q

Labour price variances usually result from which two factors

A

(1) paying workers higher wages than expected

(2) a misallocation of workers

49
Q

when is the manager responsible for labour price variances?

A

When workers are not unionized and there are wage increases that caused the labour price variances

50
Q

when is the production department responsible for labour price variances?

A

abour price variances that result from misallocation of the workforce

51
Q

what do labour quantity variances relate to?

A

the efficiency of workers

52
Q

to whom can we usually relate the cause of a labour quantity variance?

A

the production department

53
Q

when is the production department responsible for labour quantity variances?

A

poor worker training

worker fatigue

faulty machinery

carelessness

54
Q

why is the task more challenging for finding manufacturing overhead variances?

A

both variable and fixed overhead costs must be considered

55
Q

the difference between the actual overhead costs and overhead costs applied based on standard hours allowed for the amount of goods produced

A

the total overhead variance

56
Q

Total standard hours allowed

A

The hours that should have been worked for the units produced

57
Q

Formula for total overhead budget variance

A

Actual Overhead - Overhead Applied = Total Overhead Variance

Overhead Applied: Total Standard Hours Allowed (TSHA) · Standard Rate (SR)

58
Q

total variable overhead budget variance (TVOHBV)

A

shows whether variable overhead costs were effectively controlled

the actual variable overhead costs incurred are compared with budgeted costs for the total standard hours allowed

59
Q

Formula for the total variable overhead budget variance

A

Actual Variable Overhead - Variable Overhead Applied = Total Variable Overhead Budget Variance (TVOHBV)

Variable Overhead Applied: Total Standard Hours Allowed (TSHA) · Standard Rate (SR)

60
Q

Formula for variable overhead spending (price) variance

A

Actual Variable Overhead - Total Actual Hours (TAH) · Standard Rate (SR) = Variable Overhead Spending (Price) Variance (VOHSPV)

61
Q

Formula for variable overhead efficiency (quantity) variance

A

Total Actual Hours (TAH) · Standard Rate (SR) - Total Standard Hours Allowed (TSHA) · Standard Rate (SR)

= Variable Overhead Efficiency Variance (VOHEV)

62
Q

total fixed overhead variance

A

the difference between the actual fixed overhead and the total standard hours allowed · by the fixed overhead rate

63
Q

Formula for the total fixed overhead variance

A

Actual Fixed Overhead - Fixed Overhead Applied

= Total Fixed Overhead Variance

Fixed Overhead Applied:

Total Standard Hours Allowed (TSHA) · Standard Rate (SR)

64
Q

fixed overhead spending (budget) variance

A

shows whether spending on fixed costs was under or over the budgeted fixed costs for the year

65
Q

Formula for fixed overhead spending (budget) variance

A

Actual Fixed Overhead Costs - Fixed Overhead master Budget (Static Budget)

= Fixed Overhead Spending (Budget) Variance (FOHSV)

Fixed Overhead master Budget (Static Budget):

Normal Capacity Hours (NCH) · Standard Fixed Rate (SR)

66
Q

The fixed overhead volume variance

A

answers the question of whether we effectively used our fixed capacity

67
Q

If we produces less than normal capacity would allow, an unfavourable or favorable variance results?

A

unfavourable variance

68
Q

If we produces more than normal capacity would allow, an unfavourable or favorable variance results?

A

favorable variance

69
Q

Formula for fixed overhead volume variance

A

Fixed Overhead master Budget (Static Budget) - TSHA · SR

= Fixed Overhead Volume Variance

Fixed Overhead master Budget (Static Budget):

Normal Capacity Hours (NCH) · Standard Fixed Rate (SR)

or

Fixed Overhead rate · (NCH - TSHA)

70
Q

what is important to remember when calculating the overhead variances?

A
  1. The standard hours allowed are used in each of the variances.
  2. The total budget overhead variance generally relates to total variable overhead budget variance and the fixed overhead spending (budget) variance only
  3. The volume variance relates only to fixed overhead costs
  4. Over-applied or under-applied overhead is the difference between the total actual overhead costs (variable + fixed) and the budget overhead at the standard base (based on direct labour hours) allowed
71
Q

how is the overhead volume variance also called?

A

the production volume variance

72
Q

causes of an unfavorable overhead spedningvariance

A

(1) a higher-than-expected use of indirect materials, indirect labour, and factory supplies
(2) increases in indirect manufacturing costs

73
Q

on whom does the responsibility of overhead spending variance rest on?

A

the production department

74
Q

on whom does the responsibility of overhead volume variance rest on?

when are they to blame?

A

the production
department

inefficient use of direct labour or machine breakdowns

75
Q

when the cause of a overhead volume variance is a lack of sales orders, on whom does the responsibility rest?

A

not the production
department

would be the sales department

76
Q

Variance reports make it easier or harder to use the “management by exception” approach?

A

easier

77
Q

income statements prepared for management

A

cost of goods sold is stated at standard cost and the variances are disclosed separately

78
Q

what types of variances increase or decrease COGS?

A

Unfavorable variances increase cost of goods sold

favorable variances decrease cost of goods sold

79
Q

can income statements for shareholders be reported at standard costs instead of actual costs?

A

yes if the variances are not that big

80
Q

The balanced scorecard

A

uses financial and non-financial measures in an integrated system

integrated system links performance measurement and a company’s strategic goals

81
Q

The four most commonly used balanced scorecard perspectives

A

The financial perspective

The customer perspective

The internal process perspective

The learning and growth perspective

82
Q

The balanced scorecard financial perspective

A

the most traditional view of the company

uses the financial measures of performance that most firms use

83
Q

The balanced scorecard customer perspective

A

evaluates how well the company is performing from the viewpoint of those people who buy and use its products or services

measures how well the company compares with competitors in terms of price, quality, product innovation, customer service, and other dimensions

84
Q

The balanced scorecard internal process perspective

A

evaluates the internal operating processes that are critical to success

All critical aspects of the value chain are evaluated to ensure that the company is operating effectively and efficiently

85
Q

The balanced scorecard learning and growth perspective

A

evaluates how well the company develops and retains its employees

includes an evaluation of such things as employee skills, employee satisfaction, training programs, and the communication of information

86
Q

In summary, the balanced scorecard does what

A
  1. Employs both financial and non-financial measures
  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 of the company’s goals into a single performance measurement system, so that too much weight will not be placed on any single goal

Comm 305: Managerial Accounting (32 decks)

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