Accounting 210: Chapter 11 – Flashcards
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A standard is budget for what kind of unit?
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One unit
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The direct material price variance can be defined as
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Actual quantity purchased * (Actual price - Standard price)
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The direct material quantity variance can be defined as
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Standard price * (Actual quantity used - Standard quantity allowed)
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The direct labor rate variance can be defined as
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Actual hours * (Actual rate - standard rate)
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The direct labor efficiency variance can be defined as
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Standard rate * (Actual hours - Standard hours allowed
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What are advantages of using standard costs?
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Standards serve as cost benchmarks, the are useful for budgeting and can simplify bookkeeping
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The variable overhead rate variance can be defined as
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Actual hours * (Actual rate - standard rate)
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What are ideal standards?
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Standards based on perfect or ideal conditions
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Practical standards are based on..
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currently attainable conditions
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What does the direct labor rate variance tell managers?
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how much of the total labor variance is due to paying a higher or lower hourly wage rate than anticipated
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What does the direct labor efficiency variance tell managers?
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how much of the total labor variance is due to using a greater or lesser amount of time than anticipated
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What are the disadvantages of using standard costs and variances?
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outdated or inaccurate standards, lack of timeliness, focus on operational performance measures and visual management, lean thinking, increase in automation and decrease in direct labor, unintended behavioral consequences.
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How can standard costs be used?
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as performance benchmarks against which to evaluate actual costs.
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Should we use ideal standards or practical?
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Practical
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What information is used to develop standards?
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Historical, current and projected data
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How often should standard costs be updated?
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Reviewed at least once a year, and updated whenever a non-temporary change in costs, inputs or processes occurs.
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What is the best position for DM price variance?
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Purchasing supervisor
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What is the best position for DM quantity variance?
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Production supervisor
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What is the best position for DL rate variance?
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Production and Human resources supervisor
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What is the best position for DL efficiency variance?
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Production supervisor
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What variable overhead variances should we compute?
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Rate variance and efficiency variance
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What fixed overhead variances should we compute?
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Budget variance and volume variance
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Who is usually in the best position to explain why variances occurred?
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management
