standard costing & variance analysis

Question 1

what is standard costing ?

Answer 1

planned costs for materials, labour and overheads in a period

quantity x rate

Question 2

what does standard costing help with ?

Answer 2

with business budgeting and decision making

Question 3

what does standard costing set ?

Answer 3

a standard to compare to assess elements of performance

Question 4

what is variance analysis ?

Answer 4

identifying the cause of a difference between the standard cost or expected revenue, and the actual cost or revenue

Question 5

each cost/revenue has 2 variables :

Answer 5

• price per unit
• quantity of units

Question 6

combinations that could cause overall cost/revenues to increase ?

Answer 6

price ⬆️
quantity ⬆️

price ⬆️
quantity ➡️

price ➡️
quantity ⬆️

price ⬇️
quantity ⬆️

price ⬆️
quantity ⬇️

Question 7

how can we find the cause of overall variances ?

Answer 7

to isolate the variances within each cost/revenue

Question 8

what are the formulas for variance analysis used for ?

Answer 8

isolate how much of the variance has been caused by the cost of something changing and the quantity of something changing

Question 9

how do sales variances work ?

Answer 9

these work in the exact same way as the cost variances

if the actual is higher than the standard, this is favourable

Question 10

why do we need to flex the budget ?

Answer 10

if the number of units expected to be produced and actually produced are different, the amount of materials/labour used is not comparable

Question 11

how do we flex the budget ?

Answer 11

flex the standard quantity within the usage variance formula