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Operational Case Study > P1 - Variances > Flashcards

P1 - Variances Flashcards

1
Q

What is a standard cost?

A

The estimate given in advance to how much something should cost

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2
Q

What 3 things are standard costs useful for?

A
  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
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3
Q

What 3 things are used in creating the standard quantities?

A
  1. Past experience
  2. Product specifications
  3. Department experts
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4
Q

What 3 things are used in creating the standard prices?

A
  1. Current prices
  2. Expected future price changes
  3. Supplier/discount availability
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5
Q

What are the 4 possible different standards?

A
  1. Basic - nothing changed since first set
  2. Current
  3. Attainable - some improvements
  4. Ideal - optimum efficiency and minimum waste
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6
Q

How do you calculate the sales volume variance?

A

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

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7
Q

How do you calculate the sales price variance?

A

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

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8
Q

How do you calculate the total materials variance?

A

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

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9
Q

How do you calculate the materials price variance?

A

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

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10
Q

How do you calculate the materials usage variance?

A

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

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11
Q

How do you calculate the total labour variance?

A

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

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12
Q

How do you calculate the labour rate variance?

A

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

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13
Q

How do you calculate the idle time variance?

A

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

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14
Q

How do you calculate the labour efficiency variance?

A

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

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15
Q

How do you calculate the total variable overhead variance?

A

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

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16
Q

How do you calculate the variable overhead expenditure variance?

A

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

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17
Q

How do you calculate the variable overhead efficiency variance?

A

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

18
Q

How do you calculate the total fixed overhead variance?

A

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

19
Q

How do you calculate the fixed overhead expenditure variance?

A

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

20
Q

How do you calculate the fixed overhead volume variance?

A

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

21
Q

How do you calculate the fixed overhead capacity variance?

A

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

22
Q

How do you calculate the fixed overhead efficiency variance?

A

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

23
Q

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

A
  1. Higher inflation
  2. Market shortages
  3. Higher quality
24
Q

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

A
  1. Increased economic activity
  2. Lower prices
  3. Successful advertising
25
Q

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

A
  1. Obtaining discounts
  2. Reduction in quality
  3. Using cheaper suppliers
26
Q

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

A
  1. Higher quality materials
  2. More efficient processes (less waste)
  3. Dropping quality thresholds
27
Q

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

A
  1. Lower grade staff

2. Poor economic conditions

28
Q

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

A
  1. Higher motivation
  2. Better quality equipment
  3. Errors on time sheets
29
Q

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

A

These costs are not considered as fixed

30
Q

How do you calculate the ABC overhead efficiency variance?

A

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

31
Q

How do you calculate the ABC overhead expenditure variance?

A

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

32
Q

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

A
  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
33
Q

How do you calculate the sales mix variance?

A

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

34
Q

How do you calculate the sales quantity variance?

A

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

35
Q

How are sales volume, mix and quantity variance linked?

A

volume variance = mix + quantity variance

36
Q

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

A
  1. Upswing in economy
  2. Successful marketing campaign
  3. Less competition in the market
37
Q

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

A
  1. Increase in overall market size
  2. Good performance by the sales team
  3. Discounts offered to customers
38
Q

What are 3 alternative control techniques to variance analaysis?

A
  1. Supervision and monitoring
  2. Staff training
  3. Customer feedback
39
Q

What is a planning variance?

A

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

40
Q

What is an operational variance?

A

The difference between the revised budget and actual results

41
Q

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

A
  1. Defining the cost unit may be hard as they may not be tangible
  2. Services are much less likely to be standardised
42
Q

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

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

Operational Case Study (10 decks)

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