Standard Costing and Variance Analysis
30 Questions
0 Views

Standard Costing and Variance Analysis

Created by
@WellEstablishedWisdom

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which statement best describes a standard cost?

  • It is the actual cost incurred in producing a product.
  • It indicates the maximum price a company is willing to pay for materials.
  • It represents the minimum cost that can be achieved in production.
  • It is a benchmark used for planning and control purposes. (correct)

    • Which of the following is NOT a reason for using standard cost systems?

  • Simplifying inventory valuation.
  • Facilitating decision making with cost information.
  • Increasing the complexity of cost traceability. (correct)
  • Communicating management’s expectations.

    • What is the role of variance analysis in a standard cost system?

  • To estimate future quantities and costs based on historical data.
  • To develop a new standard cost for product pricing.
  • To establish upper and lower tolerance limits for all costs.
  • To identify reasons for the differences between budgeted and actual costs. (correct)

    • Which group should be involved in the standard-setting process to ensure credibility?

    <p>Representatives from diverse functional areas in the organization.</p> Signup and view all the answers

    Which statement accurately reflects why managers might prefer using standard costs?

    <p>They provide a consistent basis for controlling costs.</p> Signup and view all the answers

    What does the management by exception concept rely on in a standard cost system?

    <p>The identification of variances that require management attention.</p> Signup and view all the answers

    Why is employee involvement in standard-setting important?

    <p>It increases credibility and motivation to meet standards.</p> Signup and view all the answers

    What is the primary purpose of a standard cost system in cost control?

    <p>To compare actual costs against predetermined costs.</p> Signup and view all the answers

    What does a favorable material mix variance indicate?

    <p>Higher proportions of cheaper materials are used.</p> Signup and view all the answers

    What could be a reason for an unfavorable yield variance?

    <p>Higher waste during the production process.</p> Signup and view all the answers

    In calculating the labor mix variance, what factors are involved?

    <p>Actual Hours, Actual Mix, and Standard Rate.</p> Signup and view all the answers

    What does the labor yield variance measure?

    <p>Efficiency in the proportionate amount of labor used.</p> Signup and view all the answers

    If a material mix variance is favorable, what implication could it have on yield variance?

    <p>It could potentially lead to an unfavorable yield variance.</p> Signup and view all the answers

    Which of the following calculations represents the Material Yield Variance?

    <p>AQ x SM x SP</p> Signup and view all the answers

    Which is a consequence of using a cheaper material mix?

    <p>Increased likelihood of higher waste rates.</p> Signup and view all the answers

    What is the key component that the labor yield variance focuses on?

    <p>Total hours worked compared to the standard allowed.</p> Signup and view all the answers

    Which classification of standards is considered the most effective for inducing optimal worker performance?

    <p>Practical standards</p> Signup and view all the answers

    What is the main responsibility of the purchasing manager regarding material variances?

    <p>Managing the price variance of direct materials</p> Signup and view all the answers

    Which of the following variances is indicative of a scenario where higher quality materials are used?

    <p>Favorable material quantity variance</p> Signup and view all the answers

    In a four-variance analysis for overhead, which variance accounts for the difference between actual variable overhead and applied variable overhead?

    <p>VOH spending variance</p> Signup and view all the answers

    Which standard type is primarily based on what is actually expected to occur considering future conditions and inefficiencies?

    <p>Expected standards</p> Signup and view all the answers

    What causes an unfavorable labor efficiency variance?

    <p>Lower skilled staff</p> Signup and view all the answers

    During variance analysis, which factor is least likely to contribute to an unfavorable material price variance?

    <p>Discounts received for bulk purchases</p> Signup and view all the answers

    In the context of overhead variances, what does the volume variance measure?

    <p>Difference between applied overhead and budgeted overhead</p> Signup and view all the answers

    Which of the following factors should be considered when establishing standards for performance evaluation?

    <p>Quality of materials and wage rates</p> Signup and view all the answers

    What type of variance might occur if the use of lower quality materials leads to a favorable price outcome but results in excess usage?

    <p>Material quantity variance</p> Signup and view all the answers

    What does a higher skilled staff contribute to in terms of labor variances?

    <p>Favorable labor efficiency variance</p> Signup and view all the answers

    Which calculation method separates overhead variances into spending, efficiency, and volume variances?

    <p>Four-variance analysis</p> Signup and view all the answers

    Which variance is the responsibility of the production manager in relation to direct labor?

    <p>Labor efficiency variance</p> Signup and view all the answers

    Material mix and yield variances are calculated when:

    <p>Proportions of input materials have changed</p> Signup and view all the answers

    Study Notes

    Standard Costing and Variance Analysis

    • Standard Cost: A planned unit cost of a product or service, representing a target cost used for planning, control, and motivation.
    • Standard Cost System: A product costing system using standard quantities and prices for components, enabling cost control through actual vs. standard comparisons.
    • Benefits of Standard Cost Systems: Clerical efficiency, motivation through performance expectations, planning using current costs, control through variance analysis, and decision-making support.
    • Components of Standard Cost Systems: Materials, labor, and overhead. Standards should be developed by a group with representatives from cost accounting, industrial engineering, personnel, data processing, purchasing, and management.

    Material Variances

    • Material Price Variance: Measures the difference between the actual price paid for materials and the standard price. (AQp x AP) - (AQp x SP)
    • Material Quantity Variance: Measures the difference between the actual quantity of materials used and the standard quantity allowed for production. (AQU x SP) - (SQ x SP)
    • Responsibility: Purchasing manager for price variance, Production manager for quantity variance.
    • Causes of Material Variances: Quality changes, bulk discounts, supplier changes, price increases, budgeting errors, and production efficiency.

    Labor Variances

    • Labor Rate Variance: Measures the difference between the actual labor rate paid and the standard labor rate. (AH x AR) - (AH x SR)
    • Labor Efficiency Variance: Measures the difference between the actual hours worked and the standard hours allowed for production. (AH x SR) - (SH x SR)
    • Responsibility: Production manager for both labor rate and efficiency variances.
    • Causes of Labor Variances: Skilled worker mix, overtime/bonus changes, budgeting errors, staff motivation, and unforeseen wage increases.

    Overhead Variances

    • Overhead Variance Analysis: Methods include four-variance, three-variance, and two-variance approaches, each focusing on different aspects of overhead analysis.
    • Four-Variance Analysis: Separates variances by variable overhead (VOH) spending, VOH efficiency, fixed overhead (FOH) spending, and volume.
    • Three-Variance Analysis: Combines VOH variances into a single spending variance, focusing on total overhead spending, efficiency, and volume.
    • Two-Variance Analysis: Further consolidates overhead variances into a budget/controllable variance and a volume variance.

    Material Mix and Yield Variances

    • Material Mix Variance: Measures the difference in cost resulting from using a different combination of materials than the standard mix. (AQ x AM x SP) - (AQ x SM x SP)
    • Material Yield Variance: Measures the difference in the actual output achieved compared to the standard output expected from the quantity of materials used. (AQ x SM x SP) - (SQ x SM x SP)
    • Interpretation: Favorable mix variance suggests using a higher proportion of cheaper materials, while unfavorable yield variance indicates lower output from a given input.

    Labor Mix and Yield Variances

    • Labor Mix Variance: Measures the cost impact of using a different mix of high or low-paid workers than the standard mix. (AH x AM x SR) - (AH x SM x SR)
    • Labor Yield Variance: Measures the cost impact of using more or fewer labor hours than the standard hours allowed for production. (AH x SM x SR) - (SH x SM x SR)

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    This quiz covers the fundamentals of standard costing and variance analysis. Learn about standard cost systems, their components, and the calculation of material variances. Test your understanding of how these concepts apply to cost control and decision-making.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser