Standard Costing - Direct Costs Flashcards
What is standard costing?
The planned unit cost of a product or service, whereas budget setting is concerned with the costs of sections of the organisation.
Difference between Marginal and absorption standard costing?
Marignal - just look at variable costs, address fixed costs at the end
Absorption - Fixed costs intergrated into each product.
What are the advantages of standard costing?
To help with decision making - pricing decisions
Assist in planning - plan quantity and cost of resources needed for future production
Monitoring and controlling - Standard costs can be compared with actual costs
Name 4 types of standard
Ideal standard - no allowances for inefficiencies or wastage of labour or materials, assumes perfect conditions
Target Standards - Set at the level which the organisations wishes to achieve, designed to be challenging but attainable.
Normal Standard - Level which is expected to be achieved under current operating conditions
Basic Standard - Historical standard that allows comparisons to be carried out over long periods of time.
Advantages of Basic standard?
Can be used to identify trends, used to make comparisons
Disadvantages of Basic standard?
Set on old historical out of date, not compariable with current conditions
Advantages of Target Standard?
Fair and achieveable if set correctly
Chalenges and motivates employees
Bonus schemes can be introduced
Disadvantages of Target Standard?
Different people have different views on what is attainable
Can be time consuming
Needs to be reviewed regularly
Advantages of Ideal standard?
Everything is perfect
Disadvantages of Ideal standard?
Variances generally adverse
Unattainable = Demotivates
No room to offer a bonus scheme, as it wont be achieved.
What is the matrix for materials
AQ x AP
AQ x SP
SQ x SP
SQ is worked out as (actual output x (budgeted materials/budgeted output)
What is the matrix for labour
AH x AR
AH x SR
SH x SR
SH is worked out as (actual output x (budgetd hours/budgeted output)
How to work out material price variance?
Actual - (Actual x Standard)
How to work out Labour rate variance?
Actual hours - (Actual x standard)
How to work out material usage variance?
AQ x SR - Standard
How to work out Labour efficiency variance?
AH x SR - SH x SR
What may cause a direct material price variance?
Fav:
unforeseen discounts recieved
Cheaper material used
Adv:
Price increase
Expensive material used
What may cause a direct material usage variance?
Fav:
Better quality
Efficient material
Adv:
Higher wastage
Poor skill level of labour
What may cause a direct labour rate variance?
Fav:
Used lower grade labour
Lower wages paid
Adv:
Used higher grade labour
Wage increase
What may cause a direct labour efficiency variance?
Fav:
Efficient workforce
Well motivated
Adv:
Idle time
Poorly motivated
