Ch11 Flashcards
(21 cards)
What is Standard Costing?
An estimated predetermined unit cost of products and services during a specific period in the near future based on current and/or anticipated operating conditions.
Why is Standard Costing prepared by management in advance?
- To detail their expectations of the future.
- Encourage efficient future operations.
- Eliminate inefficiencies.
How do Standard Costs and their variances benefit management?
- Keep management informed about the economy, efficiency, and effectiveness of production processes.
- Facilitate supervisory personnel being made directly responsible for the variances under their control.
What is the purpose of variance analysis in Standard Costing?
- To provide a measure of the fairness of standards.
- Facilitate further analysis.
- Encourage and reward cost control commensurate with desired levels of performance.
What are the uses of Standard Costing?
- Assists in planning.
- Helps establish budgets.
- Controls costs.
- Directs and motivates employees.
- Highlights opportunities for cost reductions.
- Simplifies costing of products.
- Assigns costs to inventories, and provides a cost basis for contracts and sales prices.
Where is Standard Costing most suitable?
In places with large amounts of repetition in the production process, such as mass production or repetitive assembly work.
Where is Standard Costing not suitable?
For tailor-made products and services.
How are standards used in budgeting?
- They facilitate control.
- Highlight possibilities for cost reductions.
- Use predetermined costs for the budget period.
- Provide information for reports comparing actual costs with predetermined costs.
What is the difference between a Budget and Standards in terms of scope?
BUDGETS = a statement of expected costs to direct activities to an agreed action plan.
STANDARDS = specify what costs should be for a level of performance achieved.
What is the difference between a Budget and Standards in terms of highlights?
BUDGET = highlights the volume of activity and level of costs to be maintained as desired by management, while.
STANDARDS = highlight the levels to which costs should be reduced to increase profits.
What are Ideal Standards?
Standards attained under perfect operating conditions with no wastage, idle time, inefficiencies, or breakdowns.
What are the advantages and disadvantages of Ideal Standards?
Advantages:
- Provides an incentive for employees to be more efficient.
Disadvantages:
- May have an unfavorable effect on motivation as the goals may seem unattainable.
What are Basic Standards?
Long-term standards that remain unchanged over the years and are used to show trends, based on historical data.
What are the disadvantages of Basic Standards?
They can be out-of-date, easy to achieve in the future, and may have an unfavorable effect on motivation as employees may get bored and lose interest.
What are Current Standards?
Standards based on current working conditions, including current wastage and inefficiencies.
What are the disadvantages of Current Standards?
They do not motivate employees to improve and are time-consuming and costly to implement.
What are Attainable Standards?
Standards that can be attained if production is carried out efficiently, machines are properly operated, and materials are properly used, with some allowances for wastage and inefficiencies.
What are the advantages of Attainable Standards?
They provide an incentive to work harder and offer a realistic but challenging target of efficiency.
What are Flexible Budgets?
Budgets designed at the planning stages to vary with activity levels.
What are Flexed Budgets?
Revised budgets that reflect the actual activity levels achieved in the budget period, showing what costs and revenues should have been based on the actual level of activity.
What is the usefulness of Flexed Budgets?
They highlight variances caused by higher or lower prices and costs than budgeted, and show the effect on profit of operating at a different activity level from the plan.
