Standard Costing And Variance Analysis

Question 1

What is a standard cost?

What is variance analysis?

Answer 1

Expected cost

Difference between standard and actual costs

Question 2

What are the four purposes of standard costing?
How does it help with cost control?
How does it help motivate?

Answer 2

Budgets/planning exercises 
Cost control 
Motivation 
Performance management systems 
Helps to understand variances 
Gives targets to work towards

Question 3

What are 4 factors to consider when setting standards?
What 3 factors influence material prices?
What 3 factors influence labour rates?
What affects overhead absorption rates?
What should quantities and times be?(2)

Answer 3

Labour rates, material rates, overhead absorption rates, quantities and times
Expectations of inflation, supplier risk, exchange rates
Agreed pay increases, minimum wage, economic climate
Normal pre-determined rates
Attainable and ideal

Question 4

What are the 2 types of standards?

Answer 4

Ideal and attainable

Question 5

Ideal standard costing
What does this require?
What does this method assume?(5)
Why may this be demotivating? And what may this lead to?

Answer 5

Perfect operating conditions 
Lowest cost
No faulty production/machine set ups 
No idle time 
No wastage most efficient conditions 
Unattainable adverse variances

Question 6

Attainable costing method
What is this in comparison to the ideal method?
What does this allow?
What does this reflect?
What is this for staff? And so what does it lead to?

Answer 6

More realistic 
For idle time and material wastage 
Efficient operating 
Motivating because it’s more achievable 
Mix of variances adverse and favourable

Question 7

What costs go into a standard cost?

Answer 7

Labour vc
Material vc
Overhead vc
Fixed oh absorbed via OAR

Question 8

How do we work out the difference between standard and actual costs?
What is favourable variance?

Answer 8

with a serious of formulas

When there is an increase in profits as a result of a decrease in costs