Chapter 7 Flashcards

1
Q

Uses of standard costs

A

Help in budgeting to reduce the fixed, flexible and flexed budgets

Compare with the actual costs, and hence, as a control technique (forming the basis of variance analysis)

Motivates staff

Value inventory is in the actual income statement and balance sheet as well as the budgeted statements of profit or loss of financial position

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2
Q

The four standards

A

Basic standard – assumes nothing has changed since last standard was first set

Current standard – assumes that current efficiency and cost levels will be maintained (doesn’t promote continuous improvement)

Attainable standard – assumes there will be some improvements in current efficiency and cost levels (the most commonly used)

Ideal, standard – assumes an optimum level of efficiency and cost minimisation of waste (unrealistic) 

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3
Q

Sales, volume profit variance

Absorption costing

A

Is the difference between the actual volume and the budgeted volume?

Multiplied by the standard profit per unit.

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4
Q

Sales volume contribution

Marginal costing

A

Difference in the actual sales in the budgeted sales

Multiplied by the standard contribution per unit 

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5
Q

Criticisms of traditional standard costing

A

Fast changing customer needs require flexibility and imagination so dear into one standard is not optimum.

Traditional variance analysis will encourage buying the cheapest resources and getting full use out of resources. Both these things are not encouraged in just-in-time environment. We are high, quality materials, reliable suppliers, not producing until customer demand is there, our desired features

In quality improvement (total quality management) environment principle is the aim for continuous improvement which requires an ever evolving standard.

If an attainable standard is used, it will have some allowance within it for wastage/ideal time. This is the odds with quality principles 

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