Standard Costing Flashcards
what is a responsibility centre?
where is a centre is responsible for the way they manage their goals and objectives
what does the controllability principle deal with?
distorting effects and applying guidelines
what does control do?
those actions which ensure that mgmt objectives and plans are achieved
3 basic components of a control system?
- predetermined standard/performance level
- measure of actual performance
- comparison between standard and actual performance
decision-making process?
- identify objectives
- search for alternative courses of action
- gather data about alts
- select course of action
- implement decision
- compare actual and planned outcomes
- respond to divergencies from plan
control process?
- compare actual and planned outcomes
- respond to divergencies from plan
what is a standard?
level of quality/attainment used as normal or average
what is a standard cost?
target costs for each operation that can be built up to produce a product standard cost.
what is a standard costing system?
a control system that analyses budgeted vs actual to enable control
purposes of standard costing?
- provide a prediction of future costs that can be used for decisions
- performance evaluation
- budget setting
- control – identify activities that do not conform to the budget
ideal / theoretical / perfection standards
- only attainable under near perfect operating conditions (full efficiency, no breakdowns, 100% employee effort)
- mgmt believes it will motivate employees to achieve lowest cost possible
disadvantages of perfection standards?
- staff moral levels
- could sacrifice product quality to achieve lower costs
- large variances from ideal standards are hard to interpret
practical standards?
- assumes production that is as efficient as practically possible
- reasonable effort from employees required – more pos and prod attitude
- variances represent variations from normal ops. signal abnormal conditions.
what is a budget?
a detailed plan summarizing the fin consequences of an org’s op activites for a specified future period
what is a static budget?
planned for one specific activity level at the beginning of the year
what does total cost amt consist of?
- cost per unit of input
- quantity of input
- total no of output units made
what does variance analysis do?
looks at the diff between actual cost vs what should have happened. mgmt will look at significant vars – allows them to focus only on areas where the business is not performing according to their plans/goals, be more efficient.
who is responsible for DM variances?
- price: purchasing manager
- quantity: production manager, engineers, supervisors
what can cause DM variances?
- quantity
- quality
- storage of mat
- labour skills
- suppliers
who is responsible for DL variances?
- rate: HR dept, production manager
- efficiency: production manager
what can cause DL variances?
- productivity
- normal time vs overtime
- experience and training
- labour type
what are on-costs?
costs of labour in addition to normal salaries amount. should only be included if these extra costs will be consistent for the future
adv of standard cost?
- facilitates responsibility accounting
- allows mgmt to evaluate performance
disadv of standard costing?
- variance doesn’t tell you precisely why the problem occurred
- favourable can be misleading
- variances only calculated after period has occurred