Standard costing and variance analysis (9)

Question 1

Define standard costing

Answer 1

Standard costing is the preparation of standard costs to use in variance analysis.

A standard cost is the expected, or budgeted, cost per unit of output.

Question 2

Define favourable variance

Answer 2

A favourable variance (F) occurs if actual profit is higher than budgeted profit

Question 3

Define unfavourable variance

Answer 3

An unfavourable variance (A) occurs if actual profit is lower than budgeted profit

Question 4

Define sales volume variance

Answer 4

The sales volume variance explains the difference in profit between the fixed and flexed budgets

Question 5

Define sales price variance

Answer 5

The purpose of calculating sales price variance is to determine the effect on contribution and thus profit, of the actual selling price per units being different from budgeted price

Question 6

State the formula for sales volume variance

Answer 6

Sales volume variance:
(Actual quantity - budgeted quantity) x standard contribution per unit
(AQ-BQ) x SCPU

Question 7

State the formula for sales price variance

Answer 7

Sales price variance:
(Actual price - standard selling price) x actual quantity sold
(AP-SP) x AQ

Question 8

Define material total variance

Answer 8

The material total variance explains the difference between the material cost in the flexed budget and the actual material cost incurred

Question 9

Define material price variance

Answer 9

The purpose of the material price variance is to ascertain whether the company paid more or less per kg than expected for materials used or purchased

Question 10

Define material usage variance

Answer 10

The purpose of the material usage variance is to ascertain whether the company used more or less material than expected to produce the actual number of cost units produced

Question 11

State the formula for material price variance

Answer 11

Material price variance;
(Standard price - Actual price of material) x Actual quantity
(SP-AP) x AQ

Question 12

State the formula for material usage variance

Answer 12

Material usage variance:
(Standard quantity used - actual quantity of material used) x standard price
(SQ used - AQ used) x SP

Question 13

Define labour total variance

Answer 13

The labour total variance explains the difference between the labour cost in the flexed budget and the actual labour cost

Question 14

Define labour rate variance

Answer 14

The purpose of the labour rate variance is to ascertain whether the company paid more or less than expected in wages for the actual number of hours employees were paid for

Question 15

Define labour efficiency variance

Answer 15

The purpose of the labour efficiency variance is to ascertain whether the employees worked for more or less labour hours than expected to produce the actual number of cost units

Question 16

State the formula for labour rate variance

Answer 16

Labour rate variance:
(Standard rate per hour - actual rate per hour) x actual hours
(SR-AR) x AH

Question 17

State the formula for labour efficiency variance

Answer 17

Labour efficiency variance:
(Standard hours for actual number of cost units produced - actual hours) x standard rate per labour hour
(SH-AH) x SR

Question 18

Define variable overhead total variance

Answer 18

The variable overhead total variance explains the difference between the variable overhead cost in the flexed budget and the actual variable overhead cost

Question 19

Define variable overhead expenditure variance

Answer 19

The purpose of the variable overhead expenditure variance is to ascertain whether the company paid more or less per hour than expected for variable overheads

Question 20

Define variable overhead efficiency variance

Answer 20

The purpose of the variable overhead efficiency variance is to ascertain whether the company used more or less variable overheads by working more or less hours than expected

Question 21

State the formula for variable overhead expenditure variance

Answer 21

variable overhead expenditure variance:
(standard rate per hour - actual rate per hour) x actual hours
(SR-AR) x AH

Question 22

State the formula for variable overhead efficiency variance

Answer 22

variable overhead efficiency variance:
(Standard hours for actual number of cost units produced - actual hours) x standard rate per hour
(SH-AH) x SR

Question 23

Define fixed overhead variance

Answer 23

Fixed overhead variances are the difference between budgeted and actual expenditure on fixed overheads during the period

Question 24

State the formula for fixed overhead variance

Answer 24

fixed overhead variance:

Actual expenditure - budgeted expenditure

Question 25

Define operating statements

Answer 25

An operating statement, or statement of variance, shows the reconciliation between budgeted contribution and actual profit