Standard Costing Flashcards
What is a standard cost?
Estimated unit cost. It is planned, and based on the resources required to produce one unit of ouput.
What is variance analysis?
The comparison of standard costs to actual costs.
What is an ideal standard?
One that assumes perfect working conditions and does not make allowances for any losses or waste.
What is a drawback of an ideal standard?
Any variances can only ever be adverse which may affect motivation or morale
What is an attainable/expected standard?
Based upon efficient, but not perfect, level of operation and will include realistic allowances for losses and waste.
What are attainable standards used for?
Budgeting and budgetary controls
What is a basic standard?
Long term standard that remains unchanged over a period of years. They show trends over time for material prices, labour efficiency and effects of changing production methods.
What are the uses of standard costing?
Determines the most suitable materials and methods of operation.
Acts as a performance measurement
Employees know that they are being monitored
Motivate employees to achieve standard
Saves time for management by only investigating significant variances
Can be used in the valuation of inventory
Assist in setting budgets
Helps for decision making
What are the issues with standard costing?
Only estimates, so accuracy of unit cost is dependent on quality of data
System is not flexible
Managers may overestimate
Slow feedback
Time and expense involved
Problematic when it comes to urgent issues
How is standard cost per unit calculated for variables?
Materials: Usage x price
Labour: Hours x rate
Variable o/h: Hours x rate
How is standard cost per unit calculated for fixed o/h?
Budgeted fixed cost / Budgeted level of activity
Standard cost card pro-forma:
Direct materials x
Direct labour x
Direct expenses x
Variable overhead x
Fixed overhead x ---------------- Standard cost x Standard profit x ---------------- Standard selling price x
Who sets standards for materials used?
Design department set specification, and production department set usage
Who sets standard for price?
Purchase price of materials by buying department
Who sets standards for labour cost?
Skill or grade of workers set by production department
Planned labour time set by production department
Wage rate set by HR department
