Podcast
Questions and Answers
What is a standard cost system primarily used for?
What is a standard cost system primarily used for?
- To determine market demand
- To measure the final cost of a product or service (correct)
- To analyze employee performance
- To measure actual sales revenue
Which of the following is NOT a principal use of standard costing?
Which of the following is NOT a principal use of standard costing?
- Highlighting activities that are out of control
- Establishing employee salaries (correct)
- Measuring cost of production
- Valuing inventories
What is referred to as a variance in standard costing?
What is referred to as a variance in standard costing?
- The standard cost of a product
- The difference between actual and standard costs (correct)
- The actual cost of a product
- The total production cost
In which production situations is standard costing most beneficial?
In which production situations is standard costing most beneficial?
What type of costing system can use standard costs?
What type of costing system can use standard costs?
What should be prepared by production experts to estimate the materials required for a product?
What should be prepared by production experts to estimate the materials required for a product?
What does the process of variance analysis involve?
What does the process of variance analysis involve?
What is used to set the standard cost of direct labor for a unit of product?
What is used to set the standard cost of direct labor for a unit of product?
Which of the following characterizes the nature of standard costs?
Which of the following characterizes the nature of standard costs?
How often is the absorption rate of fixed production overheads typically predetermined?
How often is the absorption rate of fixed production overheads typically predetermined?
Which type of production is least likely to benefit from standard costing?
Which type of production is least likely to benefit from standard costing?
Why must standard input quantities be made known to production operators?
Why must standard input quantities be made known to production operators?
What does the ‘standard operation sheet’ specify?
What does the ‘standard operation sheet’ specify?
What can be affected by inflation when setting labor standards?
What can be affected by inflation when setting labor standards?
What must be discussed with the personnel department to set direct labor rates?
What must be discussed with the personnel department to set direct labor rates?
What must be carefully set and understood by the labor force for labor efficiency?
What must be carefully set and understood by the labor force for labor efficiency?
What is a primary disadvantage of using ideal performance standards?
What is a primary disadvantage of using ideal performance standards?
Which type of performance standard provides a realistic yet challenging target for employees?
Which type of performance standard provides a realistic yet challenging target for employees?
How do current standards differ from attainable standards?
How do current standards differ from attainable standards?
What are basic standards primarily used for?
What are basic standards primarily used for?
What is one major factor that can complicate setting direct material price standards?
What is one major factor that can complicate setting direct material price standards?
Which type of performance standard is least likely to motivate employees over time?
Which type of performance standard is least likely to motivate employees over time?
What is crucial for well-set current standards to be effective?
What is crucial for well-set current standards to be effective?
When setting standards based on historical data, what is a significant risk?
When setting standards based on historical data, what is a significant risk?
What is the main issue with using the current price of materials when setting standard prices?
What is the main issue with using the current price of materials when setting standard prices?
What characterizes attainable performance standards?
What characterizes attainable performance standards?
Which type of standard is often referred to as 'practical standards'?
Which type of standard is often referred to as 'practical standards'?
What is one characteristic of ideal standards?
What is one characteristic of ideal standards?
What happens when prices of materials are expected to increase gradually?
What happens when prices of materials are expected to increase gradually?
How is the standard cost of direct labor calculated?
How is the standard cost of direct labor calculated?
What is the role of technical specifications in product manufacturing?
What is the role of technical specifications in product manufacturing?
What is included in the 'standard operation sheet' for labor?
What is included in the 'standard operation sheet' for labor?
How often are the absorption rates of fixed production overheads typically established?
How often are the absorption rates of fixed production overheads typically established?
What must be done to ensure that production operators understand the control actions for material wastage?
What must be done to ensure that production operators understand the control actions for material wastage?
What characteristic is important for setting standard procedures or operating methods?
What characteristic is important for setting standard procedures or operating methods?
What are standard costs in a standard costing system primarily used for?
What are standard costs in a standard costing system primarily used for?
Why might you encounter similar problems with inflation when setting labor standards?
Why might you encounter similar problems with inflation when setting labor standards?
What is a likely consequence of not setting realistic standard times for labor?
What is a likely consequence of not setting realistic standard times for labor?
Which statement best describes a variance in standard costing?
Which statement best describes a variance in standard costing?
In which production scenario is standard costing considered most advantageous?
In which production scenario is standard costing considered most advantageous?
What is the purpose of variance analysis in a standard costing system?
What is the purpose of variance analysis in a standard costing system?
Which of the following types of production is least likely to utilize standard costing effectively?
Which of the following types of production is least likely to utilize standard costing effectively?
How are standard costs created in a standard costing system?
How are standard costs created in a standard costing system?
What is one critical factor for achieving the benefits of standard costing?
What is one critical factor for achieving the benefits of standard costing?
Which costing system can utilize standard costs for financial analysis?
Which costing system can utilize standard costs for financial analysis?
What is a likely consequence of using ideal performance standards?
What is a likely consequence of using ideal performance standards?
Attainable performance standards are characterized by which of the following?
Attainable performance standards are characterized by which of the following?
What defines current performance standards?
What defines current performance standards?
Which type of performance standard is primarily used as a benchmark over time?
Which type of performance standard is primarily used as a benchmark over time?
What is a primary drawback of utilizing basic performance standards?
What is a primary drawback of utilizing basic performance standards?
How should a direct material price standard be estimated considering inflation?
How should a direct material price standard be estimated considering inflation?
Which of the following methods should be avoided when setting standards for new processes?
Which of the following methods should be avoided when setting standards for new processes?
Current standards require what key element for effectiveness?
Current standards require what key element for effectiveness?
What challenges can arise from using ideal performance standards in organizations?
What challenges can arise from using ideal performance standards in organizations?
What is the main risk of setting standards based on historic data?
What is the main risk of setting standards based on historic data?
What potential effect do ideal standards have on employee behavior over time?
What potential effect do ideal standards have on employee behavior over time?
Why might setting a standard price based on new estimates be more effective?
Why might setting a standard price based on new estimates be more effective?
Which type of performance standard might fail to provide a motivational impact ultimately?
Which type of performance standard might fail to provide a motivational impact ultimately?
In what way can current performance standards be beneficial?
In what way can current performance standards be beneficial?
What role do production experts have in estimating labor hours for a product?
What role do production experts have in estimating labor hours for a product?
How are standard labor rates per hour determined?
How are standard labor rates per hour determined?
What is included in the standard operation sheet for labor?
What is included in the standard operation sheet for labor?
What is the main purpose of standard input quantities being known to production operators?
What is the main purpose of standard input quantities being known to production operators?
When are the absorption rates for fixed production overheads typically predetermined?
When are the absorption rates for fixed production overheads typically predetermined?
What complicates the process of setting direct material price standards?
What complicates the process of setting direct material price standards?
Which statement best describes the concept of 'absorbed costs' in standard costing?
Which statement best describes the concept of 'absorbed costs' in standard costing?
What should be prepared to list the quantities required per unit of each material for a product?
What should be prepared to list the quantities required per unit of each material for a product?
What is the primary purpose of establishing standard costs in a standard costing system?
What is the primary purpose of establishing standard costs in a standard costing system?
How do variances impact a standard costing system?
How do variances impact a standard costing system?
In which costing situation is standard costing primarily applicable?
In which costing situation is standard costing primarily applicable?
What is the role of variance analysis in a standard costing system?
What is the role of variance analysis in a standard costing system?
What factor primarily affects the effectiveness of standard costing systems?
What factor primarily affects the effectiveness of standard costing systems?
Which characteristic best describes standard costs in absorption costing systems?
Which characteristic best describes standard costs in absorption costing systems?
What happens when a company fails to establish realistic performance standards?
What happens when a company fails to establish realistic performance standards?
How are standard costs established within standard costing systems?
How are standard costs established within standard costing systems?
What are ideal standards based on?
What are ideal standards based on?
Which type of performance standard is described as providing a realistic yet challenging target for employees?
Which type of performance standard is described as providing a realistic yet challenging target for employees?
What is a disadvantage of using current performance standards?
What is a disadvantage of using current performance standards?
What characterizes basic performance standards?
What characterizes basic performance standards?
When estimating costs for standard prices, which factor can complicate the process?
When estimating costs for standard prices, which factor can complicate the process?
What can be the psychological effect of reporting variances from ideal standards?
What can be the psychological effect of reporting variances from ideal standards?
Which method can be used for setting standards when new working methods are introduced?
Which method can be used for setting standards when new working methods are introduced?
What is the impact of basic standards on employee motivation over time?
What is the impact of basic standards on employee motivation over time?
Which statement best describes attainable performance standards?
Which statement best describes attainable performance standards?
What role do purchasing departments play in setting direct material price standards?
What role do purchasing departments play in setting direct material price standards?
What factor must be managed to ensure that effective standards are set?
What factor must be managed to ensure that effective standards are set?
In what scenario might a company use an average expected price when setting a standard price for materials?
In what scenario might a company use an average expected price when setting a standard price for materials?
What is a common outcome when using ideal performance standards?
What is a common outcome when using ideal performance standards?
Study Notes
Standard Cost Definition
- A standard cost system uses predetermined costs of inputs and quantities to measure the final product or service cost.
Uses of Standard Costing
- Primarily values inventories and assesses production costs for accounting.
- Serves as a control device by establishing planned costs and using variance analysis to identify areas needing corrective action.
Standard Costing as a Control Technique
- Variances are the differences between actual and standard costs.
- Involves setting predetermined cost estimates, collecting actual costs, and comparing them.
- Standard costing applies across various manufacturing situations, favoring batch, mass production, and repetitive assembly.
Setting Standards
- Standard costs can be used in both absorption and marginal costing systems, but the focus here is on absorption costing.
Types of Performance Standards
- Four categories exist: ideal, attainable, current, and basic.
- Ideal standards may motivate efficiency but can lead to employee demotivation if perceived as unattainable.
- Attainable standards provide realistic targets, fostering productivity without overwhelming employees.
- Current standards adapt to existing conditions but do not push for efficiency improvements.
- Basic standards serve as long-term benchmarks but may become outdated and less motivating over time.
Methods of Standard Setting
- Standards must encompass both the physical quantity and cost of resources required for production.
- Historic data can influence standards, but new methods may necessitate a recalculation of standards based on modern practices.
Direct Material Standards
- Standard cost of direct material = standard price per unit x standard quantity required.
- Estimated by the purchasing department based on contracts, supplier discussions, market forecasts, and bulk discounts.
- Price volatility due to inflation complicates the establishment of realistic standard prices.
Direct Labour Standards
- Standard cost of direct labour = standard labour rate per hour x standard hours required.
- Labour rates determined through collaboration with personnel departments and reference to payroll agreements.
- Technical specifications and ‘standard operation sheets’ outline expected hours required for each product.
Overhead Absorption Rates
- Overhead costs are predetermined annually based on budgeted expenditures and production levels.
- Standard costs in selling and distribution may be absorbed as a percentage of the standard selling price.
- Marginal costing excludes elements of absorbed overhead costs.
Standard Cost Definition
- A standard cost system uses predetermined costs of inputs and quantities to measure the final product or service cost.
Uses of Standard Costing
- Primarily values inventories and assesses production costs for accounting.
- Serves as a control device by establishing planned costs and using variance analysis to identify areas needing corrective action.
Standard Costing as a Control Technique
- Variances are the differences between actual and standard costs.
- Involves setting predetermined cost estimates, collecting actual costs, and comparing them.
- Standard costing applies across various manufacturing situations, favoring batch, mass production, and repetitive assembly.
Setting Standards
- Standard costs can be used in both absorption and marginal costing systems, but the focus here is on absorption costing.
Types of Performance Standards
- Four categories exist: ideal, attainable, current, and basic.
- Ideal standards may motivate efficiency but can lead to employee demotivation if perceived as unattainable.
- Attainable standards provide realistic targets, fostering productivity without overwhelming employees.
- Current standards adapt to existing conditions but do not push for efficiency improvements.
- Basic standards serve as long-term benchmarks but may become outdated and less motivating over time.
Methods of Standard Setting
- Standards must encompass both the physical quantity and cost of resources required for production.
- Historic data can influence standards, but new methods may necessitate a recalculation of standards based on modern practices.
Direct Material Standards
- Standard cost of direct material = standard price per unit x standard quantity required.
- Estimated by the purchasing department based on contracts, supplier discussions, market forecasts, and bulk discounts.
- Price volatility due to inflation complicates the establishment of realistic standard prices.
Direct Labour Standards
-
Standard cost of direct labor is calculated using the standard labor rate and required hours, guided by technical specifications.Overhead Absorption Rates
-
Overhead costs are predetermined annually based on budgeted expenditures and production levels.
-
Standard costs in selling and distribution may be absorbed as a percentage of the standard selling price.
-
Marginal costing excludes elements of absorbed overhead costs.
Standard Cost Definition
- A standard cost system measures the final cost of a product or service using predetermined standard costs and standard quantities.
Uses of Standard Costing
- Primarily used to value inventories and measure production costs for accounting.
- Serves as a control device by establishing standards, allowing variance analysis to identify areas needing management attention.
Standard Costing as a Control Technique
- Variances are differences between actual and standard costs.
- It involves setting predetermined cost estimates, collecting actual costs, and comparing them against estimates.
- Effective in batch and mass production, job production with standardized parts, and certain service industries.
- Most beneficial in environments with repetitive production processes.
Setting Standards
-
Focus on absorption costing, applicable in both systems.Types of Performance Standards
-
Four types: ideal, attainable, current, and basic.
Ideal Standards
- Based on perfect conditions with no waste or inefficiency.
- Useful for identifying improvement opportunities but can demotivate employees due to perceived unattainability.
Attainable Standards
- Reflect realistic operating conditions while promoting efficiency.
- Provide motivation as they are challenging yet achievable.
Current Standards
- Set based on existing operational efficiencies, allowing for some inefficiencies.
- Offer psychological incentives for employees but do not aim for improved efficiency.
Basic Standards
- Statistically long-term, may become outdated and less useful over time.
- Serve as benchmarks for measuring performance changes over prolonged periods.
Methods of Standard Setting
- Standards should be established for resource quantities and costs.
- Can use historical data but might incorporate past inefficiencies.
- New standards may require fresh analyses if working methods change.
Direct Material Standards
- Calculated as standard price per unit multiplied by standard quantity per product.
- Estimated by purchasing departments based on contracts, supplier discussions, market forecasts, and bulk discounts.
- Price inflation complicates standard price setting; options include using current prices or expected average prices.
Direct Labour Standards
- Calculated as the standard labour rate per hour multiplied by standard hours required.
- Rates determined through discussions with personnel and using payroll data.
- Must reflect different labour grades/types with average rates established, regardless of individual pay variances.
Overhead Absorption Rates
- Fixed production overhead absorption rates are predetermined annually, based on budgeted expenditure and production.
- Standard costs for selling and distribution may be absorbed as a percentage of standard selling prices.
- Marginal costing does not include absorbed overheads in standard costs.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz explores the concept of standard costing, including its definition and primary uses in cost accounting. Learn how standard costs are applied to value inventories, measure production costs, and serve as a control device in organizations. Test your knowledge on the fundamentals of standard cost systems.
