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Finance > Unit 8 - Standard Costing > Flashcards

Unit 8 - Standard Costing Flashcards

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1
Q

What is standard costing?

A

A financial control system that enables deviations from budget to be analyzed in detail

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2
Q

What is a standard cost?

A

A predetermined cost that should be incurred under efficient operating conditions.

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3
Q

How do we calculate direct material standards?

A

Standard material product costs = standard quantities * standard prices

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4
Q

How do you calculate product overhead cost?

A

Hourly overhead rate * standard hours

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5
Q

Name the 3 types of cost standards.

A

Basic cost standards
Ideal standards
Currently attainable standards

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6
Q

What is basic cost standard?

A

It represents constant standards that are left unchanged over long period.

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7
Q

What is an ideal standard?

A

It represents perfect performance; minimum costs that are possible under the most efficient operating conditions.

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8
Q

What is currently attainable standards?

A

It represents those costs that should be incurred under efficient operating conditions, difficult but not impossible to achieve.

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9
Q

What are the purposes of standard costing?

A

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.

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10
Q

What is the formula for calculating material variance?

A

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

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11
Q

Calculate material usage variance.

A

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

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12
Q

Calculate total material variance.

A

Difference between the standard material cost (SC) for actual production and the actual cost (AC).

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13
Q

If the quantity purchased equals to quantity used…

A

Total variance = price variance + usage/volume variance

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14
Q

Calculate labour variance.

A

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

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15
Q

Labour efficiency variance

A

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

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16
Q

What could be some of the reasons that there is a material price variance?

A

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.

17
Q

Reasons for material usage variance.

A 
Careless handling of materials.
Purchase of inferior quality materials
Pilferage
Changes in quantity control requirements
Changes in methods if production
18
Q

Reasons for labour rate variance.

A

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.

19
Q

Provide reason for labour efficiency variance.

A

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.

20
Q

Total labour variance…

A

Difference between the standard labour cost (SC) for the actual production and the actual labour cost (AC).

21
Q

Calculate variable overhead expenditure variance.

A

Difference between the budgeted flexed variable overheads (BFVO) for the actual direct labour hours of input and the actual variable overhead costs incurred (AVO).

22
Q

Provide reasons for variable overhead expenditure variance.

A

Prices if individual items have changed.

Wastage or inefficiency.

23
Q

Calculate variable overhead efficiency variance.

A

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

24
Q

Fixed overhead variance or spending variance.

A

Difference between budgeted fixed overheads (BFO) and the actual fixed overhead (AFO).
(BFO -AFO)

25
Q

Differences in sales variances

A

For absorption costing, profit margins are used.

For variable costing, contribution margins are used.

26
Q

Calculate total sales margin variance.

A

Difference between the actual contribution (AM) and the budgeted contribution (BC) (both based on standard unit cost).
AC - BC

27
Q

Sales margin price variance.

A

Difference between the actual contribution margin (AM) and the standard margin (SM) (both based on standard unit costs) multiplied by the actual sales volume ( AV).
(AM - SM) x AV

28
Q

Sales volume variance

A

Difference between the actual sales volume (AV) and the budgeted volume (BV) multiplied by the standard contribution margin (SM).
( AV -BV ) x SM

29
Q

For standard absorption costing, an additional fixed overhead variance called volume variance is calculated. Calculate the volume variance.

A

Calculate the predetermined fixed overhead rate (SR)by using budgeted fixed overheads and divided by budgeted activity
Difference between the actual production (AP) and budgeted production (BP) for a period multiplied by the standard fixed overhead rate (SR).
(AP - BP) x SR

30
Q

Reasons for volume variances.

A

Labour force worked at a different level of efficiency from that anticipated in the budget.

31
Q

Calculate volume efficiency variance.

A

Difference between the standard hours of output (SH) and the actual hours of input (AH) for a period multiplied by the standard fixed overhead rate (SR).

32
Q

Volume capacity variance.

A

Difference between actual hours of input (AH) and the budgeted hours of input (BH) for the period multiplied by the standard fixed overhead rate (SR).
(AH - BH) x SR

33
Q

Reasons for volume efficiency variance.

A

Machine breakdowns, material shortages, poor production scheduling, labour disputes, reduction is sales demand.

Finance (12 decks)

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