Unit 8 - Standard Costing Flashcards
What is standard costing?
A financial control system that enables deviations from budget to be analyzed in detail
What is a standard cost?
A predetermined cost that should be incurred under efficient operating conditions.
How do we calculate direct material standards?
Standard material product costs = standard quantities * standard prices
How do you calculate product overhead cost?
Hourly overhead rate * standard hours
Name the 3 types of cost standards.
Basic cost standards
Ideal standards
Currently attainable standards
What is basic cost standard?
It represents constant standards that are left unchanged over long period.
What is an ideal standard?
It represents perfect performance; minimum costs that are possible under the most efficient operating conditions.
What is currently attainable standards?
It represents those costs that should be incurred under efficient operating conditions, difficult but not impossible to achieve.
What are the purposes of standard costing?
To provide prediction of future costs that can be used for decision making.
Provide a reliable and convenient source of data for budget preparation.
Act as control device by highlighting those activities that do not confirm to plan.
What is the formula for calculating material variance?
Difference between the standard price (SP) and actual price (AP) per unit of material multiplied by the quantity of material purchased (QP).
(SP - AP) x QP
Calculate material usage variance.
Difference between the standard quantity (SQ) required for actual production and the actual quantity (AQ) used multiplied by standard price (SP).
(SQ - AQ) x SP
Calculate total material variance.
Difference between the standard material cost (SC) for actual production and the actual cost (AC).
If the quantity purchased equals to quantity used…
Total variance = price variance + usage/volume variance
Calculate labour variance.
Difference between the standard wage rate per hour (SR) and the actual wage rate (AR) multiplied by the actual number of hours worked (AH).
(SR - AR) x AH
Labour efficiency variance
Difference between the standard labour hours (SH) and the actual hours worked (AH) multiplied by the standard wage rate per hour (SR).
(SH - AH) x SR
What could be some of the reasons that there is a material price variance?
Inefficiency of the purchasing department, failure to seek the most advantageous source of supply.
Change in market conditions like general price increase.
Purchase inferior quality materials which may lead to more wastage.
Shortage of materials resulting from bad inventory control, leads to emergency purchases or charged at higher prices.
Reasons for material usage variance.
Careless handling of materials. Purchase of inferior quality materials Pilferage Changes in quantity control requirements Changes in methods if production
Reasons for labour rate variance.
Negotiated increase not accounted for in standard.
Unexpected overtime.
A standard is used that represents a single average rate for works performed by workers at different rate.
Assignment of skilled labour to work that is normally performed by unskilled labour. Inappropriate match of labour to tasks.
Provide reason for labour efficiency variance.
Use if inferior quality materials.
Different grace of labour.
Failure to maintain machinery in proper condition.
Introduction of new equipment/tools and changes in production processes.
Poor production scheduling.
Changes in quality control standards.
Total labour variance…
Difference between the standard labour cost (SC) for the actual production and the actual labour cost (AC).
Calculate variable overhead expenditure variance.
Difference between the budgeted flexed variable overheads (BFVO) for the actual direct labour hours of input and the actual variable overhead costs incurred (AVO).
Provide reasons for variable overhead expenditure variance.
Prices if individual items have changed.
Wastage or inefficiency.
Calculate variable overhead efficiency variance.
Difference between the standard hours of output (SH) and the actual hours of input (AH) for the period multiplied by the standard variable overhead rate (SR).
(SH - AH) x SR
Fixed overhead variance or spending variance.
Difference between budgeted fixed overheads (BFO) and the actual fixed overhead (AFO).
(BFO -AFO)
