Accounting for control

Question 1

Standard budgets vs budgets

Answer 1

A standard is the expected cost for one unit, so will help create budgets. A budget is the expected cost for all units

Question 2

Standard costs

Answer 2

Planned unit costs produced in a period. Used for planning labour, material etc. Are we off target etc?

Question 3

Basic standard

Answer 3

DO NOT CHANGE over many years so monitor performance. They may not reflect current production context so no learning curve

Question 4

Ideal standard

Answer 4

PAST PERFORMANCE and 100% efficiency, so no wastage, machine downtime. Used to continuously improve but assumes nothing will go wrong like a worker will never miss a day so wont reach their budget

Question 5

Practical standard

Answer 5

ACHIEVABLE standards under efficient conditions. Normal machine downtime, some waste. Tight but realistic

Question 6

Price standards

Answer 6

what do we think we can have a price for, taking account things we know we need to do. Assumes people buying for us are doing a good negotiation job

Question 7

Quantity standards

Answer 7

Design specification tells you how its going to be made and what quantity of each material you need to use

Question 8

Rate standards

Answer 8

what we think we can get our workers for, considering competitive rates and minimum wage (predetermined overhead rate)

Question 9

Time standards

Answer 9

Watch workers to see how long it takes them to do something, then calculate how long to give them on making a product. However, if they know they are being watched they’ll perform quicker so making this product wont be that time

Question 10

Base rate

Answer 10

the activity used to calculate the predetermined overhead rate

Question 11

Variance

Answer 11

Variance is the difference between planned/budgeted and the actual cost incurred.
If its unfavourable= actual costs exceeds standard cost (adverse)
If its favourable= actual cost is less than standard cost, e.g. you paid less for materials then excpeted but does that mean less quality?

Question 12

Static budget

Answer 12

budget for planned activity, but if actual is different for planned this budget will be misleading
static budget shows higher planned activity= variable costs lower
static budget shows lower planned activity then variable costs are higher

Question 13

Variance analysis cycle

Answer 13

1. Questions- Why is it more or less than expected
2. Explanations, e.g. we used more materials
3. Action- from managers
4. Conduct change- e.g. change the materials quality
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Question 14

Price variance

Answer 14

Actual quality[what is should have cost](Actual price- what did it cost-standard price

Question 15

Quantity variance (or usage variance)

Answer 15

Standard price(Actual quantity-standard quantity [should have used]

Question 16

Actual quantity

Answer 16

all stock- stock used at end, e.g. metres

Question 17

standard quantity

Answer 17

if its per x all units produced or to get per /AQ

Question 18

causes for variance

Answer 18

e.g. price favourable because of economies of scale or unfavourable because of inflation
e.g. material favourable because trainers were really trained well, or unfavourable because issues with machines
e.g. efficiency variance was low because poor materials= account for wastage

Question 19

Rate variance (spending)

Answer 19

Actual hours(actual rate-standard rate)
total/hours to get per

Question 20

Efficiency variance

Answer 20

Standard rate (actual hours-standard hours)

Question 21

to get ‘per’ actual rate

Answer 21

cost of working/hours worked

Question 22

if its favorable or unfavourable

Answer 22

answer will be minus for favorable, positive for unfavorable

Question 23

in example

Answer 23

AP= direct materials/ total £
SQ= quantity required x actually produced
AR= total £/actual direct labour hours
SH= standard hours/standard produced x actual produced