Standard Costing Flashcards
What is a standard?
A target or goal
What is standard costing?
Comparing actual costs and revenues against standard costs and revenues
What is a variance?
The difference between actual costs and revenues and standard costs and revenues
How do you describe the variance if actual costs are higher than standard?
Adverse
How do you describe the variance if actual costs are lower than standard?
Favourable
How do you describe the variance if actual revenues are higher than standard?
Favourable
How do you describe the variance if actual revenues are lower than standard?
Adverse
What are the 4 cost sub variances?
Materials price
Materials usage
Labour rate
Labour efficiency
What is the formula for PRICE based variances?
(Sp-Au) x Au
What is the formula for USAGE based variances?
(SU-AU) x SP
What do we mean by USAGE?
the amount of materials used (kg, l, m, oz) or the amount of hours used in total
What is the formula for the Sales Price sub-variance?
(SP-AP) x AS
What is the formula for the Sales Volume sub-variance?
(SS-AS) x SP
If the Sales Price s-v is favourable, what does this mean?
Higher selling price than planned
If the Sales Volume s-v is advers what does this mean?
Fewer sales (units) than planned
What is a reconciliation statement for in Standard Costing
shows why actual profit/expenditure/revenue differs from standard profit/expenditure/revenue
What is meant by an interrelationship between variances?
one variance affects or is affected by another variance
What is the relationship between an adverse MP s-v and a favourable LE s-v?
materials cost more therefore better quality; less labour hours used due to less wastage of materials
What is the relationship between a favourable MP s-v and an adverse SV s-v?
materials cost less therefore lower quality; sales volume less due to low quality
What is the relationship between an adverse MP s-v and a an adverse SP s-v?
materials cost more so selling price increases to cover costs
Why do we need to FLEX our budgets?
have to compare like with like… unfair to compare usage for making x units against usage for making y units
When we flex the budget, what aspect of the formula is flexed?
only SU
