Standard costing and Variance analysis Flashcards
What is standard costing?
Predetermined estimates of the costs of products or services
What are the advantages and disadvantages of standard costing?
More accurate, benchmark, efficiency targets, allows variance analysis, simplify bookkeeping, motivate staff
Harder to apply to service industries
What is a favourable or adverse variance?
F - actual results are better than budgeted
A - actual results are worse than budgeted
How are sales volume variance and sales price variance calculated?
(Actual units sold - Budgeted units sold) x budgeted contribution per unit
Actual units sold x (Actual sales price per unit - budgeted sales price per unit)
How should closing inventory be valued?
Standard cost using actual materials purchased
Actual cost using actual materials used
How are total material variance, material usage variance and material price variance calculated?
TMV: (Actual units produced x budgeted materials cost per unit) - actual total materials cost
MUV: (Actual units produced x budgeted materials cost per unit) - (actual total material quantity x budgeted material price per kg)
MPV: (Actual total material quantity x budgeted material cost per kg) - actual total materials cost
How are total labour variance, labour efficiency variance and labour rate variance calculated?
TLV: (Actual units produced x budgeted labour cost per unit) - actual total labour cost
LEV: (Actual units produced x budgeted labour cost per unit) - (actual total labour hours worked x budgeted labour cost per hour)
LRV: (Actual total labour hours for x budgeted labour cost per hour) - actual total labour cost
How are total variable overhead variance, variable overhead efficiency variance and variable overhead expenditure variance calculated?
TVOV: (Actual units produced x budgeted variable overhead cost per unit) - actual total variable overhead cost
VOEV: (Actual units produced x budgeted variable overhead cost per unit) - (actual total labour hours worked x budgeted variable cost per hour)
VOExV: (Actual total labour hours worked x budgeted variable overhead cost per hour) - actual total variable overhead cost
How is fixed overhead expenditure variance calculated?
Budgeted fixed overhead cost - Actual fixed overhead cost
What are the possible causes for favourable and adverse sales volume?
Efficient sales force, successful advertising campaign, budgeted conservative
Demotivated sales force, too optimistic budget
What are the possible causes for favourable and adverse sales price?
Supply shortages, discounts
Supply surplus, too many discounts
What are the possible causes for favourable and adverse material usage?
Materials used of higher quality, effective use of materials, errors
Defective material, excessive waste, theft, stricter quality control
What are the possible causes for favourable and adverse materials price?
Unforeseen discounts received, set too high
Price increase in market, careless purchasing
What are the possible causes for favourable and adverse labour/variable overhead efficiency?
Output produced more quickly than expected, error in allocating time to jobs
Lost time, output lower
What are the possible causes for favourable and adverse labour rate?
Use of apprentices
Wage rate increase, higher grade labour
What are the inter-related variances?
Materials price and usage
Labour rate and efficiency
Sales price and sales volume
Cost and sales variances
