Standard costing and variation analysis

Question 1

what is a standard cost

Answer 1

a pre-determined unit cost which is prepared for each cost unit. Represents a target cost which performance can be measured with variance analysis

Question 2

standard costing advantages

Answer 2

• aids more accuracy budgeting
• gives targets for employees
• provides a framework for scheduling activities
• simplifies accounting
• enables management by exception via variance analysis

Question 3

what is variance analysis

Answer 3

comparison of actual costs with budgets. This allows management by exception

Question 4

standard costing in service environments

Answer 4

• difficulty in establishing a measurable cost unit
• in some service organisations, every cost unit will be different
• strong influence of the human influence on output

Question 5

sales volume variance

Answer 5

The sales volume variance measures the increase or decrease in standard contribution as a result of the sales volume being higher or lower than budgeted.

The sales volume variance is calculated as the difference between the actual units sold and the budgeted quantity, valued at the standard contribution per unit.

Question 6

sales price variance

Answer 6

The sales price variance is a measure of the effect on expected contribution of charging a different selling price from the standard selling price.

It’s calculated as the difference between what the sales revenue should have been for the actual quantity sold, and what it actually was.