Lecture 2.1/2 - Variance analysis

Question 1

Standard costing

Answer 1

A financial control system that enables deviations from budget to be analysed in detail, enabling costs to be controlled more effectively

Question 2

Purposes of standard costing

Answer 2

Decision making
Challenging targets
Setting budgets
Control
Simplify profit measurement

Question 3

Variance analysis

Answer 3

Breakdown of differences between the standard cost of a product and its comparable actual cost

Question 4

3 outcomes of variances

Answer 4

Favourable
Neutral
Adverse

Question 5

Reasons for variances

Answer 5

Inefficiency in operations
Random fluctuations
Problems with machinery
Poor quality materials
Poor staff performance
Deterioration in market conditions

Question 6

Price variance

Answer 6

Occurs when there is a difference between standard price and actual price

= (SP - AP) X AQ

Question 7

Quantity variance

Answer 7

Occur when there is a difference between standard quantity and actual quantity

= (SQ - AQ) x SP

Question 8

Market share variance

Answer 8

Actual market size x (Actual market share - expected market share) x standard contribution per unit

Question 9

Possible cases of mix variance

Answer 9

Change mix based on prices or different quality of materials

Question 10

Yield variance possible causes

Answer 10

Failure to follow standard procedures
Higher/lower input than expected
Not to be interpreted in isolation

Question 11

internal efficiencies that can cause variances

Answer 11

Failure to follow prescribed procedures
Faulty or inefficient machinery
Human errors
Poor negotiation, supervision, training

Question 12

Random/uncontrollable factors causing variances

Answer 12

Market fluctuations
Availibility

Question 13

Criticism of standard costing

Answer 13

Over emphasis on the importance of direct labour
Delay in feedback reporting
Inconsistency with modern management approaches
Impact of changing cost structure