Lecture 9 Flashcards
What are standard costs
Standard Costs are predetermined costs that serve as a benchmark for evaluating the actual costs incurred in production or operations
What are standard costs used to estimate
They are used to estimate the expected costs of manufacturing a product or providing a service under normal
What is the purpose of standard cost
Purpose of standard cost:
- Cost Control
- Budgeting and Planning
- Performance Evaluation
- Decision-Making
- Consistency and Accuracy
What do standard costs provide a baseline against
Standard costs provide a baseline against which actual costs can be compared
What do standard costs assist in setting
They assist in setting realistic budgets and financial targets for departments or projects
What can businesses assess by comparing actual costs to standard costs
By comparing standard costs to actual costs, businesses can assess performance and identify areas for improvement
How do standard costs aid in the decision making process
Standard costs aid in decision-making processes, such as pricing, cost-cutting, and resource allocation
What are the components of standard costs
Components of Standard Costs:
- Materials Standard
- Labour Standard
- Overhead Standard
What are the advantages of standard costs
Advantages:
- Helps in setting performance benchmarks
- Simplifies financial reporting
- Provides insights into operational efficiency
What are the limitations of standard costs
Limitations:
- May become outdated if not updated regularly
- Assumes ideal conditions, which may not always reflect actual production realities
- Can lead to inaccurate decision-making if not revised for changes in market conditions or production processes
What are variances
Variances are the differences between standard costs and actual costs incurred during production or operations
What’s the usefulness of variance
Usefulness of Variances:
- Performance Evaluation
- Cost Control
- Resource Allocation
- Decision-Making
- Improved Accountability
- Continuous Improvement
How do variances help with budget vs actual
Budget vs. Actual: Variances help evaluate how well a business is performing compared to the planned budget or standard costs
How do variances provide financial insight
They provide a clear understanding of how costs deviate from expectations, allowing managers to pinpoint issues that need attention
Where do variances reveal inefficiencies
Variances reveal where inefficiencies exist, such as excess spending on materials, labour, or overhead
