Variances Flashcards
What are Ideal Standards?
An ideal standard is a standard which can be achieved under perfect operating conditions. It does not allows for any waste or inefficiency. It also ignores idle time and machine breakdowns.
They are useful as long-term targets but are not very useful for the day-to-day control purposes. They cannot be achieved and employees may be discouraged and they will not work hard o attain the set goals
What are Attainable Standards?
An attainable standard is a standard which can be attained if production is carried out efficiently and materials are used properly. Some allowance is made for wastage and inefficiency. Attainable standards provide an incentive to work harder since they provide a realistic but challenging target of efficiency.
They are used for product costing, budgeting and cost control.
What is the purpose and importance of variance analysis to businesses.
Management will need to investigate the variances to determine their causes. It is only through identification of what has caused the variance that corrective measure can be taken.
Variance analysis helps businesses monitor their financial performance and identify any areas of concern. They can identify any issues and take action to improve their performance.
What are two way Material Cost Variances can occur?
- New Suppliers
- Trade Discounts
- New Prices
What are two ways that Labour Cost Variances occur?
- Hire of Workers at a higher/lower rates of pays
- Current economic conditions - underemployment or overemployment
What is the purpose of standard costing?
Standard costing is principally used for planning and control. The system is used by the planning team in setting budgets and eventually managerial performance. Standard cots are the target costs and hence, the standard cost of production represents the cost that should be incurred when the organisation is operating efficiently.
More so, standard costs may be used to value inventory and cost of production.
