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AC1025 Principles of Accounting > Standard Costing & Variance Analysis > Flashcards

Standard Costing & Variance Analysis Flashcards

1
Q

What are the budgetary control steps?

A
  1. Preparation of budget
  2. Recording actual achievements
  3. Investigating differences
  4. Taking action where necessary and/or revising budget
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2
Q

Possible reasons for variances?

A
  1. Actual output level differed from budgeted output
  2. More/less of resource needed to produce each unit of output than expected (e.g. materials, labour or electricity)
  3. More/less input/sales prices than expected
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3
Q

What does flexing the budget do?

A

Recalculates original budget to reflect actual output level achieved -> compare ACTUAL vs STANDARD sales revenue, input quantities and costs

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4
Q

Types of variances to quantify effects of differences in revenue, input and costs

A
  1. Sales
  2. Variable costs
  3. Fixed overhead
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5
Q

Variance analysis steps

A
  1. Reconstruct original budget (based on target units from standard cost schedule)
  2. Original budgeted profit vs actual profit achieved -> favourable/adverse
  3. Flexed budget (based on actual output)
  4. Calculate variances
  5. Operating statement
  6. Comments on overall profit, variances, causes
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6
Q

Fixed Overheads applied in flexed budget

A

Based on ACTUAL output using ORIGINAL per unit absorption rate (from original expectation output) from standard cost schedule

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7
Q

What does total volume variance represent?

A

Additional profit business should have earned from increase in output assuming other expectations are met

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8
Q

Types of sale variances?

A
  1. Sales Price variance
  2. Sales Volume variance
    -contribution
    -margin -> FOH volume variance
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9
Q

Sales price variance

A

(AP/unit - SP/unit) x AQ sold
Isolate change in selling price by keeping Q units constant

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10
Q

What does sales price variance reflect?

A

Difference between standard selling price per unit from ORIGINAL budget vs ACTUAL selling price achieved from ACTUAL results

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11
Q

Types of sales volume variances?

A
  1. Sales contribution volume variance
  2. Sales margin volume variance
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12
Q

Sales contribution volume variance formula

A

(AQ sold - SQ sold) x Standard Contribution/unit
Isolate change in output by keeping contribution per unit constant

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13
Q

Sales margin volume variance formula

A

(AQ sold - SQ sold) x Standard Profit Margin/unit
Isolate change in output by keeping margin per unit constant

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14
Q

Sales volume variance analysis

A

Positively related
Positive variance: favourable (AQ > SQ)
Negative variance: adverse (AQ < SQ)

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15
Q

Types of variances in terms of variable costs

A
  1. Material price variances
  2. Material efficiency (usage) variances
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16
Q

Material price variance formula

A

(AP of material - SP of material) x Actual Q used
Isolate change in price by keeping quantity constant

17
Q

Material efficiency formula

A

(AQ used - SQ used) x Standard Price of Material
Isolate change in Q used by keeping price constant

18
Q

Price and efficiency variance for VC analysis

A

Inversely related
Negative variance: favourable (AP or AQ < SP or SQ)
Positive variance: adverse (AP/AQ > SP/SQ)

19
Q

Types of fixed overhead variances

A
  1. Volume variance (required after calculating sales margin volume variance)
  2. Spending variance
20
Q

Spending variance formula

A

Actual FOH expense @ actual units - Original FOH expense @ expected units

21
Q

Fixed overhead volume variance formula (if calculated sales margin volume variance)

A

Original FOH expense @ expected units - Actual Units x Standard P per unit (e.g. 2 labour hours @ $6)

22
Q

Fixed overhead variances analysis

A

inversely related
negative variance: favourable
positive variance: adverse

23
Q

Operating statement format to present variances

A

4 columns: (1) Description, (2) Favourable, (3) Adverse, (4) Final figures
Descriptions:
Budgeted profit
Sales price variance
Sales volume variance
(difference between total F and A)
Standard profit (budgeted profit - difference)
Cost variances
Materials price
Materials efficiency
Variable Overhead spending
Variable Overhead efficiency
Fixed Overhead spending
Fixed Overhead efficiency
(difference between total F and A)
Actual profit (standard profit - difference)

24
Q

Variance comments

A
  1. Identify large (important) and small (unconcerned with) variances
  2. Total variance btwn actual and budgeted profit (favourable/adverse)
  3. List most significant individual variances
  4. Suggest reasons for variances and link different variances together
25
Q

Comment on adverse sales price variance

A

Due to drop in price per unit, either because
(1) competitive/economic conditions out of firm’s control or (2) deliberate to raise sales volume

26
Q

Comment on favourable volume variance

A

Due to AQ > SQ
Insufficient to compesate for fall in actual sales price per unit
Deliberate drop in sales price to raise sales volume is not financially worthwhile

27
Q

Comment on adverse material price variance

A

Due to increased price per kg, either because
(1) switch in supplier or
(2) supply shortage which forces price up

28
Q

Comment on favourable material efficiency variance

A

Suggests material price increased because of choosing to purchase higher quality materials -> less wastage
If decision was deliberate: continue because net result is favourable

29
Q

Comment on adverse labour variance

A

Small magnitude but net variance is adverse so warrants investigation
Favourable price variance
Adverse efficiency variance either because
(1) hire lower-skilled staff: cheaper but take longer to perform same tasks or
(2) mistakes made when working faster to produce higher level of output

30
Q

Comment on variable overhead variance

A

Small magnitude and net variance favourable
Adverse efficiency variance linked to labour because based on labour hours
Improvement in labour will also improve VOH
Unnecessary to investigate further

31
Q

Comment on fixed overhead variance

A

Adverse but of small magnitude
Unnecessary to investigate further too

AC1025 Principles of Accounting (7 decks)

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