Standard Costs and Variance Analysis Flashcards
What is a standard?
It is the expected cost for one unit
What is a budget?
It is the expected cost for all units
Who sets standard costs?
Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations
What are standard costs?
They are based on carefully predetermined amounts, are used for planning labour, materials and overhead requirements, the expected level of performance and are benchmarks for measuring performance
What are ideal standards?
They allow for no machine breakdowns or work interruptions and require that workers operate at peak efficient 130% of the time which are rarely met
What are practical standards?
They are tight, but attainable. They allow for normal machine downtime and employee rest periods and can be attained through reasonable, but highly efficient, efforts by the average worker
What is a standard cost variance?
It is the amount by which an actual cost differs from the standard cost
What is management by exception?
When managers focus on quantities and costs that exceed standards
Why are variances important?
They point to causes of problems and directions for improvement, and the trigger investigations in departments having responsibility for incurring the costs
What is the variance analysis cycle?
Analyse variances, identify questions, receive explanations, take corrective actions, conduct next periods operations and then prepare a standard cost performance report
What is price variance?
The difference between the actual price and the standard price
What is quantity variance?
The difference between the actual quantity and the standard quantity
