P1 - Variances

Question 1

What is a standard cost?

Answer 1

The estimate given in advance to how much something should cost

Question 2

What 3 things are standard costs useful for?

Answer 2

1. Help in producing fixed, flexible and flexed budgets
2. Compare with the actual costs and hence as a control technique - variance analysis
3. Value inventories in the actual and budgeted P&L and SFP

Question 3

What 3 things are used in creating the standard quantities?

Answer 3

1. Past experience
2. Product specifications
3. Department experts

Question 4

What 3 things are used in creating the standard prices?

Answer 4

1. Current prices
2. Expected future price changes
3. Supplier/discount availability

Question 5

What are the 4 possible different standards?

Answer 5

1. Basic - nothing changed since first set
2. Current
3. Attainable - some improvements
4. Ideal - optimum efficiency and minimum waste

Question 6

How do you calculate the sales volume variance?

Answer 6

Difference between actual and budgeted sales volume, valued at standard profit or contribution (absorption or contribution)

Question 7

How do you calculate the sales price variance?

Answer 7

The difference between the actual revenue and the expected revenue for the actual volume sold valued at standard price

Question 8

How do you calculate the total materials variance?

Answer 8

The difference between the standard cost of actual volume produced and the actual cost of materials incurred

Question 9

How do you calculate the materials price variance?

Answer 9

The difference between the expected standard cost of materials purchased and how much they actually cost

Question 10

How do you calculate the materials usage variance?

Answer 10

The difference between the standard quantity of materials used for the actual volume produced and the actual quantity of materials used, valued at the standard cost per unit of measure

Question 11

How do you calculate the total labour variance?

Answer 11

The difference between the standard cost of labour for actual volume produced and the actual cost of labour incurred

Question 12

How do you calculate the labour rate variance?

Answer 12

The difference between the standard cost of actual labour hours paid for and the actual cost paid

Question 13

How do you calculate the idle time variance?

Answer 13

The standard cost of idle hours (difference between hours paid and hours worked, always negative)

Question 14

How do you calculate the labour efficiency variance?

Answer 14

The difference between the standard hours for volume produced and the actual hours used, valued at the standard labour cost per hour

Question 15

How do you calculate the total variable overhead variance?

Answer 15

The difference between the standard overhead cost for actual production and the actual overhead incurred

Question 16

How do you calculate the variable overhead expenditure variance?

Answer 16

The difference between the standard overhead cost for actual hours worked and the actual overhead incurred

Question 17

How do you calculate the variable overhead efficiency variance?

Answer 17

The difference between the standard hours for volume produced and the actual hours used, valued at the standard variable overhead cost per hour

Question 18

How do you calculate the total fixed overhead variance?

Answer 18

The difference between the actual units produced valued at standard cost, and the actual fixed overhead incurred

Question 19

How do you calculate the fixed overhead expenditure variance?

Answer 19

The difference between the budgeted fixed overhead and the actual fixed overhead

Question 20

How do you calculate the fixed overhead volume variance?

Answer 20

The difference between the actual and budgeted units of production, valued at the standard cost per unit

Question 21

How do you calculate the fixed overhead capacity variance?

Answer 21

The difference between the budgeted and actual hours worked, valued at standard cost per hour

Question 22

How do you calculate the fixed overhead efficiency variance?

Answer 22

The difference between the standard hours for volume produced and the actual hours used, valued at the standard fixed overhead cost per hour

Question 23

What might 3 causes of a favourable sales price variance be?

Answer 23

1. Higher inflation
2. Market shortages
3. Higher quality

Question 24

What might 3 causes of a favourable sales volume variance be?

Answer 24

1. Increased economic activity
2. Lower prices
3. Successful advertising

Question 25

What might 3 causes of a favourable materials price variance be?

Answer 25

1. Obtaining discounts 2. Reduction in quality 3. Using cheaper suppliers

Question 26

What might 3 causes of a favourable materials usage variance be?

Answer 26

1. Higher quality materials 2. More efficient processes (less waste) 3. Dropping quality thresholds

Question 27

What might 2 causes of a favourable labour rate variance be?

Answer 27

1. Lower grade staff | 2. Poor economic conditions

Question 28

What might 3 causes of a favourable labour efficiency variance be?

Answer 28

1. Higher motivation 2. Better quality equipment 3. Errors on time sheets

Question 29

Why is there a difference in fixed overhead variance analysis for activity based costing?

Answer 29

These costs are not considered as fixed

Question 30

How do you calculate the ABC overhead efficiency variance?

Answer 30

The difference between the expected number of drivers used and the actual number, valued at standard cost

Question 31

How do you calculate the ABC overhead expenditure variance?

Answer 31

The difference between the standard cost of number of drivers, and the actual cost incurred

Question 32

What are the 4 main issues with standard costing in the modern environment?

Answer 32

1. Fast changing customer needs require flexibility 2. Not aligned with JIT as encourage cheap resources and working to full capacity to avoid idle time 3. Against Total Quality Management (continuous improvement) 4. If an attainable standard is used, it will have some allowance for wastage

Question 33

How do you calculate the sales mix variance?

Answer 33

The difference between the standard mix of actual sales volume and the actual mix of actual sales volume, valued at standard profit/contribution

Question 34

How do you calculate the sales quantity variance?

Answer 34

The difference between the actual sales volume at standard mix and the budgeted volume, valued at the standard profit/contribution

Question 35

How are sales volume, mix and quantity variance linked?

Answer 35

volume variance = mix + quantity variance

Question 36

What might 3 causes of a favourable sales mix variance be?

Answer 36

1. Upswing in economy 2. Successful marketing campaign 3. Less competition in the market

Question 37

What might 3 causes of a favourable sales quantity variance be?

Answer 37

1. Increase in overall market size 2. Good performance by the sales team 3. Discounts offered to customers

Question 38

What are 3 alternative control techniques to variance analaysis?

Answer 38

1. Supervision and monitoring 2. Staff training 3. Customer feedback

Question 39

What is a planning variance?

Answer 39

The difference between the original budget and a revised budget due to poor planning or uncontrollable factors

Question 40

What is an operational variance?

Answer 40

The difference between the revised budget and actual results

Question 41

What are 2 main issues that arise when trying to use standard costing in service industries?

Answer 41

1. Defining the cost unit may be hard as they may not be tangible 2. Services are much less likely to be standardised

Question 42

What are the 4 characteristics of 'McDonaldisation' that are being applied to service industries?

Answer 42

1. Efficiency 2. Calculability 3. Predictability 4. Control