Standard Costing

Question 1

what is a responsibility centre?

Answer 1

where is a centre is responsible for the way they manage their goals and objectives

Question 2

what does the controllability principle deal with?

Answer 2

distorting effects and applying guidelines

Question 3

what does control do?

Answer 3

those actions which ensure that mgmt objectives and plans are achieved

Question 4

3 basic components of a control system?

Answer 4

• predetermined standard/performance level
• measure of actual performance
• comparison between standard and actual performance

Question 5

decision-making process?

Answer 5

• 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

Question 6

control process?

Answer 6

• compare actual and planned outcomes

- respond to divergencies from plan

Question 7

what is a standard?

Answer 7

level of quality/attainment used as normal or average

Question 8

what is a standard cost?

Answer 8

target costs for each operation that can be built up to produce a product standard cost.

Question 9

what is a standard costing system?

Answer 9

a control system that analyses budgeted vs actual to enable control

Question 10

purposes of standard costing?

Answer 10

• 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

Question 11

ideal / theoretical / perfection standards

Answer 11

• 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

Question 12

disadvantages of perfection standards?

Answer 12

• staff moral levels
• could sacrifice product quality to achieve lower costs
• large variances from ideal standards are hard to interpret

Question 13

practical standards?

Answer 13

• 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.

Question 14

what is a budget?

Answer 14

a detailed plan summarizing the fin consequences of an org’s op activites for a specified future period

Question 15

what is a static budget?

Answer 15

planned for one specific activity level at the beginning of the year

Question 16

what does total cost amt consist of?

Answer 16

• cost per unit of input
• quantity of input
• total no of output units made

Question 17

what does variance analysis do?

Answer 17

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.

Question 18

who is responsible for DM variances?

Answer 18

• price: purchasing manager

- quantity: production manager, engineers, supervisors

Question 19

what can cause DM variances?

Answer 19

• quantity
• quality
• storage of mat
• labour skills
• suppliers

Question 20

who is responsible for DL variances?

Answer 20

• rate: HR dept, production manager

- efficiency: production manager

Question 21

what can cause DL variances?

Answer 21

• productivity
• normal time vs overtime
• experience and training
• labour type

Question 22

what are on-costs?

Answer 22

costs of labour in addition to normal salaries amount. should only be included if these extra costs will be consistent for the future

Question 23

adv of standard cost?

Answer 23

• facilitates responsibility accounting

- allows mgmt to evaluate performance

Question 24

disadv of standard costing?

Answer 24

• variance doesn’t tell you precisely why the problem occurred
• favourable can be misleading
• variances only calculated after period has occurred