Standard Costing

Question 1

What are Overhead Costs?

Answer 1

Costs that cannot be traced to a cost object as they are common to serval cost objects.

Question 2

What are Variable Costs?

Answer 2

Costs that vary directly & proportionately with activity.

Question 3

What are Fixed Costs?

Answer 3

Costs that are dependent on activity (salaries of managers/depreciation).

Question 4

What are Fixed OH under Marginal Costing?

Answer 4

Unchanged costs in time period regardless of the volume of production/sale.
Treat FC as period expenses.

Fixed Overhead Expenditure Variance = Budgeted fixed overhead costs - Actual fixed O/H cost.

Question 5

Formula for POHR:

Answer 5

Annual budgeted fixed overhead / annual budgeted activity.

Question 6

Application of Manufacturing OH:

Answer 6

POHR applied to each unit of output. Could over/under-absorb OH by making more/less than we thought we needed.
Need to account for Fixed Overhead Expenditure Variance and the difference between what we incurred and what the we have absorbed.

Question 7

What is Standard Variable Costing?

Answer 7

Fixed manufacturing OH excluded from product-cost of production.
Fixed Manufacturing OH charged as expense in period, not allocated to products.

Question 8

What is Standard Absorption Costing?

Answer 8

Method of costing that includes all manufacturing costs, fixed and variable.
* Variable OH variance, Total Fixed OH, Fixed OH allocated (POHR), and volume variances are calculated.

Question 9

Benefits of Using Standard Costing:

Answer 9

• Better information for planning & decision evaluation
• Potential reduction in production price
• Enables management by exception

Question 10

Limitations of Using Standard Costing:

Answer 10

• Emphasis on negative may effect morale
• May not be timely
• Continuous improvement more important than standard costing
• Inconsistent with modern management approaches