Lecture 7

Question 1

What is a standard cost?

Answer 1

A predetermined target cost for a unit of activity - how much it SHOULD use
The target is created when considering running under efficient operating conditions

Question 2

How are labour standard costs made?

Answer 2

• Could speak to the operations management team and gain an understanding of the average wages used

Question 3

How are material standard costs made?

Answer 3

• compare with suppliers and understand the average price of a material

Question 4

How are expense standard costs made?

Answer 4

• Compare with competitors and gain an understanding of an industry-average

Question 5

Responsibility accounting? Consideration when evaluating variances

Answer 5

• Distinguish between those items that managers can control and those that they cannot control
• Set performance targets and decide how challenging they should be
• Determine how much influence managers have over the setting of targets
• Consider the Interrelationship of variances and the impact of one on another

Question 6

What is standard costing?

Answer 6

Compares expected performance with actual results, using variances to identify issues and improve outcomes

Question 7

Challenges of standard costing?

Answer 7

Complexity - Can be discouraging due to its intricate nature.

Inflexibility - Can be discouraging due to its intricate nature.

Volume of Data - Extensive variance reports may overwhelm management.

Time-consuming - Lacks adaptability in dynamic business environments.