Lecture 9 Flashcards

1
Q

What are standard costs

A

Standard Costs are predetermined costs that serve as a benchmark for evaluating the actual costs incurred in production or operations

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2
Q

What are standard costs used to estimate

A

They are used to estimate the expected costs of manufacturing a product or providing a service under normal

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3
Q

What is the purpose of standard cost

A

Purpose of standard cost:
- Cost Control
- Budgeting and Planning
- Performance Evaluation
- Decision-Making
- Consistency and Accuracy

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4
Q

What do standard costs provide a baseline against

A

Standard costs provide a baseline against which actual costs can be compared

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5
Q

What do standard costs assist in setting

A

They assist in setting realistic budgets and financial targets for departments or projects

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6
Q

What can businesses assess by comparing actual costs to standard costs

A

By comparing standard costs to actual costs, businesses can assess performance and identify areas for improvement

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7
Q

How do standard costs aid in the decision making process

A

Standard costs aid in decision-making processes, such as pricing, cost-cutting, and resource allocation

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8
Q

What are the components of standard costs

A

Components of Standard Costs:
- Materials Standard
- Labour Standard
- Overhead Standard

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9
Q

What are the advantages of standard costs

A

Advantages:
- Helps in setting performance benchmarks
- Simplifies financial reporting
- Provides insights into operational efficiency

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10
Q

What are the limitations of standard costs

A

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- May become outdated if not updated regularly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

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11
Q

What are variances

A

Variances are the differences between standard costs and actual costs incurred during production or operations

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12
Q

What’s the usefulness of variance

A

Usefulness of Variances:
- Performance Evaluation
- Cost Control
- Resource Allocation
- Decision-Making
- Improved Accountability
- Continuous Improvement

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13
Q

How do variances help with budget vs actual

A

Budget vs. Actual: Variances help evaluate how well a business is performing compared to the planned budget or standard costs

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14
Q

How do variances provide financial insight

A

They provide a clear understanding of how costs deviate from expectations, allowing managers to pinpoint issues that need attention

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15
Q

Where do variances reveal inefficiencies

A

Variances reveal where inefficiencies exist, such as excess spending on materials, labour, or overhead

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16
Q

What do variances enable businesses to do for cost management

A

Enables businesses to take corrective actions to reduce costs and improve efficiency

17
Q

How do variances assist in better resource planning

A

Variances assist in better resource allocation by highlighting discrepancies between expected and actual usage

18
Q

What does variance do for resource optimisation

A

Helps allocate resources more effectively by understanding where overspending is occurring

19
Q

what can analysing variance do for decision making

A

By analysing variances, businesses can make informed decisions regarding pricing, production adjustments, or investments

20
Q

What do variances do for predictive analysis

A

Variances provide data that supports forecasting future performance and risks

21
Q

How are managers held accountable for their departments performance

A

Managers are held accountable for their department’s performance through variance analysis

22
Q

How is variance used for employee motivation

A

When variances are used as benchmarks, employees are motivated to meet or exceed expectations

23
Q

What does regular variance analysis lead to

A

Regular variance analysis leads to process improvements as businesses strive to minimize negative variances and optimize production

24
Q

What are the different types of variance

A

Types of Variances:
- Material Variance
- Labour Variance
- Overhead Variance
- Sales Variance

25
What is material variance
Difference between standard and actual cost of materials used
26
What is labour variance
Difference between standard and actual labour costs
27
What is overhead variance
Difference between standard and actual overhead expenses
28
What is sales variance
Difference between expected and actual sales revenue
29
Material price variance =
Material Price Variance=(Standard Price − Actual Price) × Actual Quantity
30
Material Usage Variance =
Material Usage Variance = (Standard Quantity − Actual Quantity) × Standard Price
31
Labour Rate Variance =
Labour Rate Variance = (Standard Rate − Actual Rate) × Actual Hours Worked
32
Labour Efficiency Variance =
Labour Efficiency Variance = (Standard Hours − Actual Hours) × Standard Rate
33
Variable Overhead Variance =
Variable Overhead Variance = (Standard Rate − Actual Rate) × Actual Hours Worked
34
Fixed Overhead Variance =
Fixed Overhead Variance = Budgeted Fixed Overhead − Actual Fixed Overhead