Standard costing

Question 1

what is a standard cost

Answer 1

predetermined estimated unit cost, most organisations only include production costs in their standard (variable and fixed)

Question 2

what is the first process in standard costing

Answer 2

the first step in the process is usually to produce a cost card

Question 3

what are the uses of standard costing

Answer 3

to assist in setting budgets,
to act as a control device by highlighting variances from the standards,
to allow the principle of ‘management by exception’ to be practised

Question 4

what are the four different types of standard

Answer 4

ideal,
attainable,
current,
basic

Question 5

what does ideal standard mean

Answer 5

based on perfect operating conditions; no wastage, no spoilage, no inefficiencies, no idle time and no breakdowns. reported variances will always be adverse and this can be very demotivating

Question 6

what is the problem with ideal standard

Answer 6

reported variances will always be adverse and this can be very demotivating

Question 7

what does attainable standard mean

Answer 7

some allowance is made for wastage and inefficiencies. if well set provide an incentive by giving employees a realistic but challenging target to work towards

Question 8

what does current standard mean

Answer 8

these are based on current working conditions, disadvantage being that they do not encourage people to improve

Question 9

what is the disadvantage of current standard

Answer 9

do not encourage people to improve

Question 10

what is basic standard

Answer 10

kept unaltered over a long period of time and may be out of date, used to show changes in efficiency and performance over a long period of time

Question 11

what is basic standard used to do

Answer 11

used to show changes in efficiency and performance over a long period of time

Question 12

what is a variance

Answer 12

a variance is the difference between the standard cost and the actual cost (or standard revenue and actual revenue)

Question 13

what is variance analysis

Answer 13

the process by which the total difference between standard and actual results is analysed

Question 14

what is a favourable variance

Answer 14

when actual results are better than expected

Question 15

what is an adverse variance

Answer 15

if results are worse than expected results then we have an adverse variance

Question 16

what is it called when actual results are better than expected results

Answer 16

favourable variance

Question 17

what is it called when actual results are worse than expected results

Answer 17

adverse variance

Question 18

what are the three groups that variances can be divided into

Answer 18

variable cost variances (direct material, direct labour, variable overhead),
fixed production overhead variances,
sales variances

Question 19

what can variable cost variances be split into

Answer 19

direct material,
direct labour,
variable overhead

Question 20

what do fixed overheads in the standard cost mean

Answer 20

fixed overheads in standard cost means must be using TAC or ABC costing because of the allocating of fo

Question 21

what are the four reasons why budgeted profit may be different from actual profit *

Answer 21

sales volume different from budget,
sales price different from standard,
production inputs employed more (or less) efficiently than budgeted,
production input prices are different from standard

Question 22

what is materials price variance

Answer 22

impact on profit of paying a different price from standard

Question 23

what is materials usage variance

Answer 23

impact on profit of using a different quantity of material per unit from that budgeted

Question 24

what is labour rate variance

Answer 24

impact on budgeted profit of paying a different wage rate per hour to that budgeted

Question 25

what is labour efficiency variance

Answer 25

impact on profit of working a different number of hours per unit to that budgeted

Question 26

what is variable overhead rate variance

Answer 26

impact of incurring a different amount of variable overhead per labour hour worked from that budgeted

Question 27

what is variable overhead efficiency variance

Answer 27

impact on profit of working a different number of hours from that expected to produce the actual output

Question 28

what is expenditure variance for fixed overheads (different to not variable

Answer 28

extent to which fixed overheads have actually been over/under spent compared with budget

Question 29

why is the way the variance worked out different for fixed overheads

Answer 29

because the cost is not variable

Question 30

what is volume variance for fixed overheads

Answer 30

the extent to which fixed overheads have been over/under absorbed (recovered) due to differences in production volume

Question 31

what is sales volume variance

Answer 31

impact on standard profit of selling a different volume from that budgeted (this flexes the budget to actual sales level)

Question 32

what does sales volume variance do

Answer 32

this flexes the budget to actual sales level

Question 33

what is sales price variance

Answer 33

the impact on profit of the selling price differing from the budget

Question 34

what are the main differences between marginal costing and absorption costing in terms of actual profit *

Answer 34

all fixed overheads written off as a per period cost (so not included in analysis),
stock valued @ variable cost of production only,
if there is a change in stock the MC profit will differ from the TAC profit

Question 35

what is the main differences between marginal costing and absorption costing in terms of variances *

Answer 35

sales volume variance calculated using standard contribution rather than standard profit,
fixed overhead volume variances are all zero (cannot under/over absorb if not absorbed in the first place),
all other variances are unchanged

Question 36

what are possible causes of variances

Answer 36

standard set at ideal level (unachievable),
actual costs affected by inflation,
errors in allocation of cost,
errors in establishment of standard,
control over expenditure,

(if think need for exam i think these should be in more detail she goes through real life examples at end of lecture which missed cause of snow on far end of replay dated 2/23/2017)

Question 37

why do you value usage variance at standard

Answer 37

don’t want usage variance varying because of price variance you want to isolate the variances

Question 38

what is management by exception

Answer 38

examining financial results and only bringing issues to the attention of management if results represent substantial differences from the budgeted or expected amount

Question 39

what is the purpose of management by exception

Answer 39

to only bother management with the most important variances from the results of the business

Question 40

what is at the top of the operating statement (variance one) ***

Answer 40

budgeted profit,
sales volume variance,

std prof on actual sales,
sales price variance,
then all the normal variances,
top four only in total column (tq9) (gap to show line under then sum)

Question 41

what terms do you use to describe the variances for materials as oppose to variable overheads, labour and fixed overheads

Answer 41

materials - price, usage,
variable overheads and labour - rate, efficiency,
fixed overheads - expenditure, capacity

Question 42

when working out sales price and volume variances what do you need to do *

Answer 42

price is done as normal,
for the volume variance use the difference between the units but then multiply it by standard profit per unit (contribution) instead of just the sales price (important that its valued at standard contribution not actual)