Chapter 13- Analysis and management of cost variances

Question 1

Standard costs are:

Answer 1

• based on carefully predetermined amounts
• used for planning labour and material requirements
• the expected level of performance
• benchmark for measuring performance

Question 2

Standard cost:

Answer 2

a budget for the production of one unit of product or service

Question 3

Actual cost:

Answer 3

incurred and recorded in the production of the product or services

Question 4

Cost variance:

Answer 4

The difference between the actual cost and the standard cost

Question 5

Unfavorable variance

Answer 5

Actual cost > standard cost

Question 6

Management by exception

Answer 6

Managers focus on quantities and costs that deviate significantly from standards

Take the time to investigate only significant cost variances

• not focus on everything
• what are the material deviation from the standar
• you will only focus on the material differences
• what costs are significant?

Question 7

Perfection standards

Answer 7

Can only be attained under near perfect conditions

• peak efficiency
• lowest possible input prices
• best quality material
• no disruption in production

Question 8

Practical or attainable standards

Answer 8

Tight as practical, but still expected to be obtained

• occasional machine breakdowns
• normal amounts of raw material waste

Question 9

Price variance

Answer 9

The difference between the actual price and the standard price

=AQ * (AP-SP)

Question 10

Quantity variance

Answer 10

The difference between the actual quantity and the standard quantity

=SP * (AQ-SQ)

Question 11

How do we define standard costing systems?

Answer 11

• historical data
• task analysis- what should the product cost?
• combined approach