Module 3

Question 1

What is a standard cost?

Answer 1

The expected cost of a unit of a product
Relate to budgeted cost per unit of output
All expected costs to manufacture a specific unit e.g. labour, materials overhead
Result of a standard quantity at a standard price

Question 2

What is a budgeted cost?

Answer 2

Total costs to manufacture all anticipated unites of a product

Question 3

What are variances?

Answer 3

Deviations between standard and actual performances

Question 4

What are the two typical elements of variance?

Answer 4

Efficiency/volume variance

Price/rate variance

Question 5

What is efficiency/volume variance?

Answer 5

Relates to using more or less of a resource than standard

Question 6

What is price/rate variance?

Answer 6

Resource costing more or less than the standard

Question 7

What are the 7 variances?

Answer 7

Sales volume contribution
Sales price
Material price
Materials usage
Labour rate
Labour efficiency
Fixed overhead

Question 8

What is sales volume contribution variance?

Answer 8

Sold more/less than expected

Question 9

What is sales price variance?

Answer 9

Sold units for higher/lower price

Question 10

What is material price variance?

Answer 10

Materials cost more/less per kg than expected

Question 11

What is materials usage variance?

Answer 11

More/less kg were used to make each unit than expected

Question 12

What is labour rate variance?

Answer 12

Labour cost more/less per hour than expected

Question 13

What is labour efficiency variance?

Answer 13

Labour took more/less hours to make each unit than expected

Question 14

What is fixed overhead variance?

Answer 14

Fixed overheads cost more/less than expected

Question 15

Steps for comparison between actual and budgeted?

Answer 15

Set standard costs (ongoing and reviewed)
Produce budget at planned level of activity
Produce flexed budget using standard costs and actual level of activity
Calculate actual results
Calculate variances between actual and budgeted

Question 16

Golden rules of variances?

Answer 16

For all other than sales volume contribution us ACTUAL units
For all PRICE/RATE use actual no. of kg/hours
For all EFFICIENCY/USAGE value the difference using the STANDARD cost per kg/hour

Question 17

Problems with using standard costing?

Answer 17

Variance reports often monthly so out of date when managers get them
Investigations tend to focus on negatives- quality could decrease if rush to increase output
Direct labour is often not a significant cost- variances not relevant to
Less material may represent poorer value to customer- favourable variances may result in unsatisfied customers

Question 18

What are the three categories of variances?

Answer 18

Planning
Cost
Operations