Chapter 12: Standard Costs

Question 1

what are standards

Answer 1

Used in business settings to establish consistent practices

quality control standards; codes of conduct and
standard costs for products or services

Question 2

stadnard costs are a measure of performance@`

Question 3

pros of standards costs

Answer 3

Facilitate management planning and control
* Promote greater economy by making employees more
“cost-conscious”
* Help set selling prices without having to wait for actual
costs
* Help highlight variances in management by exception
* Simplify inventory costing and record keeping
* Advantages realized only when standard costs are
carefully established and carefully used.

Question 4

standard costs vs budgeted costs siilarities

Answer 4

o Pre-determined costs
o Play a role in management planning and control

Question 5

how can standard costing be incoprorated into the budget coast accounting systems

Answer 5

the standard cost for each unit produced is
recorded as the inventoriable cost regardless of the
ACTUAL COST

STANDARD COST IS USED OVER ACTUAL COST

Question 6

how are standar costs set

Answer 6

input from all persons who have responsibility for
costs and quantities

current and should be under
continuous review

Question 7

2 levels of standard coss=ts

Answer 7

ideal standard: optimum level of performance under
perfect operating conditions

normal standard:RIGOROUS BUT ATTAINABLE efficient levels of performance attainable
under expected operating conditions

Question 8

DM price standard

Answer 8

cost per unit of
direct materials that should be incurred

o When actual cost is known and is significantly and
permanently different from the best estimate the
standard should be reviewed

• Includes related costs such as receiving, storing, and
  handling

Question 9

DM quantity standard

Answer 9

amount of direct materials
that should be used per unit of finished product or
service

think KG POUNDS ETC.

Includes allowances for unavoidable waste and
normal spoilage

Question 10

so standard dm cost

Answer 10

DM price standard x DM quantity standard

Question 11

DL price standard

Answer 11

Rate per hour that should be incurred for direct
labour
* Based on current wage rates adjusted for anticipated
changes, such as cost of living adjustments
* Includes employer payroll taxes (income tax, CPP and
EI), and benefits such as holidays, paid vacation, and
insurance

Question 12

DL quantity standard

Answer 12

Time that should be required to make one unit of the
product under normal operating conditions
* Standard quantity should include allowances for:
o Normal rest periods (e.g. coffee breaks)
o Cleanup and regular maintenance
o Machine setup and downtime
* Critical in labour-intensive industries

Question 13

so standard dl cost per unit

Answer 13

Dl price stanadrd x DL quantity standard

Question 14

MOH standard

Answer 14

The predetermined rate is derived by dividing budgeted
overhead costs by an expected standard activity index

• Activity index based on normal capacity
• The average activity output the company expects to
  experience over the long-term
  o Examples: Standard direct labour hours and standard
  machine hours.
• Activity-based costing (ABC) can be used with standard
  costing

Question 15

total standard cost per uni

Answer 15

DM + DL +MOH (both fixed and vairable)

If a standard accounting system is used, the standard
cost is what is recorded in the books as well

Question 16

Unfavourable variances aoccur when:
- variances
- dm
- dl

compare to standard

Answer 16

Actual cost or price paid is greater than the standard
cost

More direct material units are used per unit of product
produced than the standard allowed

More direct labour hours are used per unit of product
produced than the standard allowed

Question 17

favourable variances aoccur when:
- variances
- dm
- dl

compare to standard

Answer 17

Actual cost or price paid is less than the standard cost
o Fewer direct material units are used per unit of product
produced than the standard allowed
o Fewer direct labour hours are used per unit of product
produced than the standard allowed

Question 18

total variance formula

Answer 18

material variance + labour variance + overhead varaiance

Question 19

material variance is made up of

Answer 19

price variance
quantity variance

Question 20

labour vairance is made up of

Answer 20

rate variance
quantity variance

Question 21

4 things you need to know to calculate direct materials varaince

Answer 21

actual quantity: used
actual price: paid
——> used to calc actual dm

standard quantity: what should have been used
standard price: what should have been paid
—–> used to calc standard dm

Question 22

to calculate Total Direct
Materials Budget
Variance (TDMBV)

Answer 22

(Actual quanity x actual price)- (Standard quantity x standard price)

NOTHING IS CONSTANT

Question 23

to calculate Materials Price
Variance (MPV)

Answer 23

(actual quantity x actual price)- (actual quantity * standard prixe)

KEEP ACTUAL QUANTITY CONSTANT

Question 24

to calculate Materials Quantity
Variance (MQV)

Answer 24

(actual quantity x standard price) - (standard quantity x standard price)

KEEP STANDARD PRICE CONSTANT

Question 25

causes of material variance

Answer 25

May be caused by a variety of factors, both internal and external factors * Investigating materials price variances begins in the purchasing department * Investigating The variance may be beyond the control of purchasing (E.g. prices rise faster than expected) * materials quantity variance begins in the production department o The variance may be beyond the control of production (E.g. faulty machinery, newer labour force unfamiliar with process)

Question 26

DM CALCULATIONS THING TO REMEMBER

Answer 26

ACTUAL - STANDARD if positive then it is unfavourable if negative then it is favourable

Question 27

labour variances done the same as dm

Answer 27

actual - standard; positive then UF, negative than F Acutal Rate * Actual Quantity - Stanadrd Rate * STanrd Quantity = total labour rate vairance Actual Rate * Acutal Quantity - Stanard Rate *Actual Quantity = Rate vairance (keep the actual quantity constant) Standard Rate * Actual Quantity - Standard Rate * Stanadrd Quantity = Quantity variance (keep the standard rate constant)

Question 28

why do we have labour rate variances

Answer 28

Labour price variances usually result from either o Paying workers higher wages than expected, or o Misallocating workers (for ex., using skilled workers in place of unskilled workers) * Labour quantity variances relate to the efficiency of workers and are usually related to the production department o Other causes include quality of the materials used; condition of equipment used

Question 29

fixed overhead. variance

Answer 29

between the actual fixed overhead - fixed overhead applied using the total standard activity base allowed forthe output achieved. can also be separated into a spending (budget) variance and a volume variance. * There is never an FOH efficiency variance due to the nature of fixed overhead

Question 30

total overhead variance

Answer 30

ACTUAL OVERHEAD COSTS - (Standard base x standard cost)

Question 31

how to calculate variable overhead variance

Answer 31

actual variable overhead - (Standard base x standard variable cost)

Question 32

Separating the TVOHBV into a spending (price) variance and an efficiency (quantity) variance will show if:

Answer 32

o More, or less, overhead costs were incurred than budgeted (spending variance); PRICE or o More, or less, activity base was used than the standardallowed for the output achieved (efficiency variance) QUANTITY

Question 33

to analyze total vmoverhead price variance

Answer 33

actual vmoh - (actual base * standard price) USE ACTUAL quantity

Question 34

to analyze total vmoverhead quantity variance THIS IS CALLED EFFICIENCY VARIANCE

Answer 34

(actual base * standard price) - (standard base * standrd price) STANDARD PRICE!!!

Question 35

causes of moh variances

Answer 35

Manufacturing overhead variances may be caused by a variety of factors * The controllable variance relates to variable manufacturing costs and usually is the responsibility of the production department o May result from either higher than expected use of indirect materials, indirect labour or supplies, or increases in indirect manufacturing costs such as fuel The volume variance may be the responsibility of the production department (inefficient use of direct labour hours) or may come from outside the production department (lack of sales orders)

Question 36

reporting variances

Answer 36

All variances should be reported to appropriate levels of management as soon as possible so that corrective action can be taken * The form, content, and frequency of variance reports vary considerably among companies * Variance reports facilitate the principle of “management by exception” * In using variance reports, top management normally looks for significant variances

Question 37

statement presentation of variances

Answer 37

In income statements prepared for management under a standard cost accounting system, the cost of goods sold is stated at standard cost and the variances are disclosed separately * Variances may also be shown in a contribution margin income statement format. nventories may be reported at standard costs when there are no significant differences between standard and actual costs. o If there are significant differences between actual and standard costs, inventories and the cost of goods sold must be reported at actual costs.

Question 38

balanced scroed card

Answer 38

do i need to study this?

Question 39

standard cost accoutning system

Answer 39

should i study this?