Topic 3 - Standard costing

Question 1

What does standard costing do?

Answer 1

Standard costing sets levels of cost/revenue which should be achievable with reasonable levels of efficiency

Question 2

What is a budget?

Answer 2

A financial plan for a future period of time for costs and/or revenues based on a firm’s objectives

Question 3

What is a variance?

Answer 3

A difference between budgeted and actual levels of cost/revenues

Question 4

How can a variance occur?

Answer 4

We used more or less

We paid more or less

Question 5

Standard costing matrix

Answer 5

Sq x Sp
Aq x Sp
Aq x Ap

Question 6

Flexing a budget

Answer 6

Overhead - materials per product * output

Sales - don’t flex

Question 7

In the exam you might be asked about causes of Sub-Variances

Answer 7

Business logic

Question 8

Structure of Statement of Reconciliation of budgeted profit with actual profit (as at)

Answer 8

Budgeted profit
Adverse/Favourable variances
Actual profit

Question 9

Standard Costing

Answer 9

Based on budgeted costs/revenues that should be achievable assuming reasonable levels of efficiency. It compares actual results with budgeted figures to identify efficiency related variances

Question 10

Advantages

Answer 10

Variance analysis allows very effective control and better decision making
Identification of sub-variances allows managers to accurately identify and focus on areas that have adverse variance to fix them and favorable variances to learn from them
Allows relationships between variances to be identified

Question 11

Disadvantages

Answer 11

Relies heavily on the budget being set accurately in the first place. Never 100% accurate