Planning And Operating Variances

Question 1

Ex post variance analysis
What is a major criticism?
Why is it argued that ex post standard should be adopted?

Answer 1

Actual performance is compared with standard based on the environment anticipated when the standard is set
Distinguished between planning and operating variances

Question 2

Possible causes of material price variances?(5)

Answer 2

Excessive purchasing
Efficient purchasing
Emergency purchasing
Market conditions quality issues

Question 3

Possible causes of material usage variances?(4)

Answer 3

CAre less handling
Pilferage
Production methods
Quality issues

Question 4

Possible causes of labour efficiency variances?5)

Answer 4

Quality issues 
Quality of machines, materials, tools 
Changes in production methods 
Staff morale 
New staff

Question 5

Possible causes of labour trate variances?(4)

Answer 5

Negotiated charges
Overtime
Mix of labour used
Quality issues

Question 6

What should we look for links between?

3 examples?

Answer 6

Variances
Price and usage
Rate and efficiency
Materials and labour

Question 7

Criticisms of standard costing 
What is always changing?
What is there inconsistency with?
What is over emphasised?
What is there a delay in?

Answer 7

Cost structure
Modern management approaches
Direct labour
Feedback reporting

Question 8

Future role of standard costing
Why do we continue to use standard costing?
What other purposes are standard cost and variance analysis used for?(3)

Answer 8

Because cost information can be used for other purposes than just cost control and performance evaluation
Inventory valuation
Decision making
Profit measurement

Question 9

Role of standard costing in ABC 
What does it control? 
What does it manage?(2)
If what for the second management style?
What do these reflect?

Answer 9

Costs of unit level activities 
Short term fixed overheads 
Long term variable costs 
Traditional volume based cost drivers are replaced with activity based cost driver 
The sources of resource consumption