week 7

Question 1

setting standard costs

Answer 1

sets a benchmark for the quantity of resources (inputs) required to produce one unit of output and cost associated with those resources

Question 2

variance analysis

Answer 2

difference between actual results and the standard
-favourable (saved money)
- adverse (overspent)

Question 3

variance analysis link to budget

Answer 3

monitor actual results

Question 4

different to budget

Answer 4

when performing variance analysis, we must flex our usage (volume) budgets to represent our actual units produced

Question 5

types of variance

Answer 5

materials
labour

Question 6

monetary standards

Answer 6

how much should be paid for each unit of input

Question 7

volume standards

Answer 7

how much quantity of input should be used

Question 8

total material variance

Answer 8

material price variance
material usage variance

Question 9

material price variance equation

Answer 9

(standard material price - actual material price) x actual quantity
how much we should of spent vs how much we did spend

Question 10

material usage variance equation

Answer 10

(standard material quantity - actual material quantity) x standard price
how much material we should of used vs how much we did use

Question 11

reasons material price favourable

Answer 11

-discounts received
- cheaper material purchased

Question 12

reasons material price adverse

Answer 12

-price increase
- poor purchasing decisions

Question 13

material usage favourable

Answer 13

-higher quality of material used
- more efficient use of material

Question 14

material usage adverse

Answer 14

• defective material
• excess waste
• production errors

Question 15

total labour variance

Answer 15

labour rate variance
labour efficiency variance

Question 16

labour rate variance equation

Answer 16

( standard labour rate - actual labour rate) x actual labour hours worked
how much we should’ve spent on labour vs how much we spent

Question 16

labour efficiency variance

Answer 16

(standard hours worked - actual hours worked) x standard labour rate
how many hours should’ve worked vs how many hours worked

Question 17

reasons labour rate favourable

Answer 17

lower paid staff

Question 18

reasons labour rate adverse

Answer 18

wage increase
higher grade of staff

Question 19

reasons labour efficiency favourable

Answer 19

more experienced staff
staff better trained
better quality of materials

Question 20

reasons labour efficiency adverse

Answer 20

lack of training
defective materials
production errors

Question 21

monetary variance

Answer 21

what we paid for
-material price (SP-AP)xAQ

-labour rate (SR-AR)xAH

Question 22

quantity based variance

Answer 22

how much we used
-material usage (SQ-AQ)xSP

-labour efficiency (SH-AH)xSR

Question 23

why standard costing

Answer 23

works well in organisations where activities are consistent and repetitive

Question 24

control device

Answer 24

Control the amount of money and materials spent on production

Question 25

value inventory

Answer 25

Standard cost may be used to set inventory valuation

Question 26

used to set budgets

Answer 26

Unit sales price and cost can be extrapolated to set sales and production budgets

Question 27

management by exception

Answer 27

variance analysis

Question 28

a word of caution

Answer 28

- controllable or uncontrollable factors; Poor buying decisions vs sudden increase in market prices - inaccurate standard set; unachievable -interdependence of variances; Cheaper material may lead to favourable price variance but adverse usage variance due to quality issues

Question 29

advantages

Answer 29

improved cost control motivation

Question 30

disadvantages

Answer 30

can be difficulty to forecast accurately doesn't encourage managers to exceed expected standards requires regular revision

Question 31

costs

Answer 31

represent amount sacrificed to achieve a straight forward business objective

Question 32

relevant cost

Answer 32

avoidable (changed by decision we have to make) future cost actual cash flow

Question 33

irrelevant cost

Answer 33

unavoidable (not affected by decision we have to make) from historic decision and/or notional cost

Question 34

types of costs

Answer 34

sunk costs committed costs notional costs opportunity costs

Question 35

committed costs

Answer 35

cash flow made in the future, but decision has been made in past, so we must pay. not considered when making decision

Question 36

sunk cost

Answer 36

also called historic cost as costs of anything already bought and paid for. decision was made in past and cannot be changed. not considered when making a decision

Question 37

notional costs

Answer 37

don't represent either actual or direct expenditure. they are accounting entries such as depreciation or allocated overhead costs of business (indirect). not considered

Question 38

opportunity costs

Answer 38

cost of opportunity sacrificed os dependant on an alternative course of action. considered when making decisions

Question 39

2 types of relevant costs

Answer 39

make or buy continuation