Semester Test 1 Flashcards
What costs are included in the standard DM price/unit
- Purchase price
- Transport
- Receiving + handling
- LESS discounts
What should be reflected in the std quantity per unit for DM
- Materials going into finished product
- Allowance for normal waste, spoilage
- Rejects
Std cost of material/unit =
Std quantity of DM/unit x Std price of DM/unit
Std rate/hr of direct labour includes
- Basic wage
- Employee benefits
- other labour benefits
Std hrs/unit of DL is
- amount of labour time required to complete a single unit
- INCL allowance for breaks, machine downtime, clean-up, rejects, and other normal efficiencies
Std labour cost/unit =
Std rate x Std hrs
Sales Price variance is =
(Actual quantity X Actual price) - (Actual quantity X Std Price)
Quantity variance is =
(Actual quantity X Std Price) - (Std quantity X Std Price)
Direct Labour Rate variance =
(Actual hrs X Actual rate) - (Actual hrs X Std rate)
Direct Labour efficiency variance =
(Actual hrs X Std rate) - (Std hrs X Std rate)
Var OH spending var =
(Actual hrs X Actual rate) - (Actual hrs X Std rate)
Var OH efficiency var =
(Actual hrs X Std rate) - (Std hrs X Std rate)
Advantages of standard costing
- Std costs are key element in management by exception approach
- Std costs greatly simplify bookkeeping
- Std costs promote efficiency and economy
Potential problems w/ std costing
- A favourable variance can be worse than an unfavourable one
- If managers use variance reports as a club, morale may suffer
Adv + Disadv of decentralization
- Adv
- Top management relieved of day-to-day problems
- Provides lower level managers w/ XP in decision making - Disadv
- May be difficult to spread innovative ideas
- There may be a lack of coordination amongst autonomous managers
What is decentralization in orgs
One where decision-making is not confined to top execs but spread throughout org
Define a cost centre
A business segment whose manager has ctrl over cost but not revenue or investments funds
Define a profit centre
A business segment whose manager has ctrl over cost and revenue but not investments funds
Define a investment centre
A business segment whose manager has ctrl over cost, revenue, and investments funds
Define a responsibility centre
Any part of an org whose manager has ctrol over cost + revenue + investment funds
How to calc ROI
Operating profit (Or Segment Margin) / Avg operating assets
Operating assets include
- Inventory
- Trade receivables
- PPE
- other assets held for operating expenses
- cash and cash equiv
ROI =
Margin x Turnover
Margin =
Operating profit / Revenue
Turnover =
Revenue / Avg operating assets
How can you improve ROI
- Increase revenue
- Reduce expenses
- Reduce assets
Residual Income (EVA) =
Operating profit - (Avg operating assets x Minimum required rate of return)
Sales volume variance =
GP per unit (AQ sold – SQ sold)
- GP = Gross Profit
-GP/unit = GP / #of units sold
OR
(actual sales units – budgeted sales units) x standard contribution margin
Calc C/B =
O/B + Produced - Sold = C/B
Explain differences between the traditional costing approach and activity-based costing
- Absorption costing is a way of allocating all costs to individual production units
- Activity based costing uses multiple cost drivers to allocate costs.
- Absorption costing is less time-consuming and a less accurate method of cost allocation
- Activity based costing is time-consuming but has an increased accuracy
