Standard variance

Question 1

Direct material cost variance

Answer 1

SC - AC

SC = SP x SQ (rate times actual production ignore planned production)

AC = AP X AQ

• Price variance = (SP - AP) * AQ
• Usage variance : (SQ - AQ) * SP

Question 2

Direct labour cost variance

Answer 2

SC - AC

SC = SR x SH (rate times actual production ignore planned production)

AC = AR X AH

• Rate variance = (SR - AR) * AH
• Usage variance : (SH - AH) * SR

Question 3

Adverse vs Favourable

Answer 3

Adverse - negative value (AC > SC)
Favourable - positive value (AC < SC)

Question 4

Fixed overheads

Answer 4

Budget - Actual

Question 5

Basic Cost standard (Not ideal to use)

Answer 5

All results are compared with a base year. Doesn’t consider changes in methods of production, price levels or other relevant factors, thus it isn’t ideal to use.

Question 6

Ideal Cost standard (Difficult to achieve)

Answer 6

They represent perfect performance where minimum costs must be at the lowest level with maximum efficiency. Doesn’t consider macroeconomic conditions and has an adverse effect on employee motivation.

Question 7

Currently attainable standard cost (Most ideal)

Answer 7

Difficult to achieve but possible takes several factors into consideration such as macroeconomic conditions