S2 - standard costing Flashcards

1
Q

what is standard cost

A

predetermined costs or target costs that should be incurred under efficient operating conditions
Same information on a per unit basis not the total activity
Compare with actual costs incurred

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2
Q

what is suitability of standard costs

A

needs repetitive operations to know what input is required to produce each unit of output
Can the activities be observed and standards set
Can production requirements be specified

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3
Q

what is the standard costing system

A

standard cost of actual output recored for each responsibility centre
Actual costs traced to each responsibility centre
Standard and actual costs compared and variances analysed and reported
Variances investigated and corrective action taken
Standards monitored and adjusted to reflect changes in standard usage

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4
Q

what is the purpose of a standard costing system

A

provide a prediction of future costs that can be used for decision making
Provide a challenging target that individuals are motivated to achieve
Assist in setting budgets and evaluating performance
Act as a control device by highlighting those activities that do not conform to plan
Simplify the test of tracing costs to products for inventory valuation
Provide a formal basis for assessing performance and efficiency and decision making
Control costs through established standards and the analysis of variances
Provide the basis for estimating

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5
Q

what are basic standards

A

standard established for use over a long period form which a current standard can be developed
Doesn’t change year to year but remains static and provides a base against which to measure action
Not widely met in practice

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6
Q

what are ideal standards

A

standard which can be attained under the most favourable conditions with ni allowance for normal losses, waste, inefficiencies, delays and machine downtime
Assumption of maximum efficiency
Will not be achieved and sustained for long

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7
Q

what are attainable standards

A

standard which can be attained if a standard unit of work is carried out efficiently, a machine properly operates or material properly used
Difficult but not impossible
Allowances made for normal losses, waste and machine downtime

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8
Q

what are approaches to standard costs

A

past historical records
Engineering studies - detailed study of each operation is undertaken based on careful specifications of materials, labour and equipment and on controlled observations of operations

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9
Q

how to establish cost standards

A

quantity standard x price standard
Identify resources required for each output and make an estimate for each
Overheads - standard hours - output measure that can act as a common denominator for adding together the production of unlike items

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10
Q

benefits of standard costs

A

makes managers and employees more cost conscious
Helps to pinpoint waste
Acts as a guide to areas where improvements can be made
Integrates management accounting and engineering functions
Setting of standards involves defining goals and reviewing roles

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11
Q

criticisms of standard costs

A

over emphasis on price and efficiency and no consideration for quality which is a major competitive factor
Uses volume variance to measure the extent to which production capacity is being utilised without considering consequences of overproduction and build up of stock
Static standards which is at odd with the philosophy of continuous improvement
Variance reporting system tends to create internal competition and arguments concerning who to take responsibility for adverse variances

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12
Q

what is variance analysis

A

seeks to offer explanation as to the sources of the variances observed - focuses managerial attention
Total = usage + price

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13
Q

material usage

A

= (Sq - Aq)Sp
standard quantity, actual quantity, standard price
Quality
Efficiency
Supervision

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14
Q

material price

A

= (Sp - Ap)Aq
inflation
Discounts
Quality of material

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15
Q

total material variance

A

= standard material cost for actual production - actual cost
= material price variance + material usage variance

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16
Q

labour rate

A

= (Sr - Ar)Ah
standard rate per hour, actual rate per hour, total actual hours
Pay award
Overtime
Bonus scheme

17
Q

labour efficiency

A

=(Sh - Ah)Sr
labour turnover
Supervision
Training

18
Q

total labour variance

A

= standard labour cost for actual production - actual labour cost
= labour rate variance + labour efficiency variance

19
Q

variable overhead

A

indirect labour, materials, electricity, maintenance
Total = standard variable overhead charged to production - actual overheads incurred
= variable overhead expenditure variance + variable overhead efficiency variance

20
Q

variable overhead expenditure

A

= (SOAR x Ah) - Avo
standard overhead absorption rate per hour, actual hours worked, total actual variable overheads
Price of individual cost items change
Inefficiency use individual variable overhead items

21
Q

variable overhead efficiency

A

= (Sh - Ah)SOAR

22
Q

quantity variances

A

= (SQ - AQ)SP

23
Q

price variances

A

= (SP - AP)AQ

24
Q

what are fixed overheads, expenditure and volume

A

= budgeted fixed overhead - actual fixed overhead
Expenditure variance = standards fixed overhead fo budgeted output Level - actual fixed overhead expenditure for actual output level
Volume variance = (actual production volume - budgeted production volume) x FOAR/unit
seeks to identify the portion of total fixed overhead variance that is due to difference in production

25
Q

total fixed overhead variance

A

= (SHP x FOAR) = actual fixed overhead expenditure
standards hours for actual production, standard fixed overhead absorption rate
Marginal costing system = difference between standard fixed overhead charges to production and actual fixed overhead incurred
Absorption = additional fixed overhead ‘volume variance’ is calculated and sales margin variance must be expressed in unit profit margins

26
Q

what is sales variance

A

shows the effect of sales activity on profits
Calculated in terms of profit or contribution, not sales values

27
Q

sales margin price variance

A

= (Ap - Svc) - (Sp - Svc) x Asv
actual selling price, standard variable cost, standard selling price, actual sales volume
(Ap - Sp) x AQ

28
Q

sales margin volume variance

A

measures impact of variation between actual and budgeted sales volume on contribution margin
= (Aq - Sq)Sm
Actual sales volume, standard sales volume, standard contribution margin

29
Q

total sales margin variance

A

= (ASR - SCOS) - SC
actual sales revenue, standard variable cost of sales, budgeted contribution
Poor standards
Ineffective marketing
Product quality
External factors
Not very meaningful as one affects the other - instead look at market share

30
Q
A