question

3 parts of control systems:

answer

-predetermined or standard performance level -measure of actual performance -comparison between standard & actual performance

question

standard cost set:

answer

best estimate of average cost to produce single unit of product or service

question

cost variance:

answer

difference between budgeted & standard cost

question

Cost standards are set by:

answer

-analysis of historical data -task analysis

question

task analysis:

answer

process of manufacturing a product to determine what it should cost -accountant or manager works with engineers in the production process

question

perfection (ideal) standard:

answer

can be attained under nearly perfect operating conditions

question

practical (attainable) standard:

answer

assume a production process that is efficient as practical under normal operating conditions -allows for occurrences of occasional machine breakdowns & raw material waste

question

standard direct material quantity:

answer

total amount of direct material normally required to produce one unit of finished product including allowances for normal waste or inefficiency

question

standard direct material prices:

answer

total delivered cost after subtracting purchase discounts of one direct material unit

question

Standard direct material quantity & prices are expressed in:

answer

the same units

question

standard direct labor quantity:

answer

number of direct labor hours normally needed to manufacture one product unit

question

standard direct labor rate:

answer

total hourly cost of compensation, including fringe benefits

question

Inputs for standard direct labor quantity & rate are based on:

answer

actual output

question

unfavorable variance (U):

answer

when spending is higher than expected

question

favorable variance (F):

answer

when spending is lower than expected

question

cost variance analysis:

answer

process of systematically comparing expected costs (standards) against actual costs, analyzing differences, & explaining significant deviations

question

direct material price variance:

answer

deviation between actual & projected material costs

question

Direct material price variance is caused by:

answer

a difference in the prices of the material

question

Direct material price variance is computed by:

answer

establishing a benchmark cost for actual amount of material used

question

benchmark cost for actual amount of material used:

answer

projected material cost

question

direct material price variance equation:

answer

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

question

direct material quantity variance:

answer

portion of difference in spending on direct material

question

Direct material quantity variance is explained by:

answer

the difference in quantity of material used in production when compared to standard quantity allowed (amount of material expected for actual output)

question

To compute direct material price variance:

answer

fix direct material price at standard & compute the difference between projected material cost & standard material cost

question

direct material quantity variance equation:

answer

(actual quantity used x standard price) - (standard quantity allowed x standard price) = standard price(actual quantity used - standard quantity allowed)

question

Deviations between actual & standard direct material price originates in:

answer

purchasing firm function

question

Standard direct material price represents:

answer

price at which the purchasing department is expected to be able to buy them

question

direct material purchase price variance:

answer

to determine if the company is able to acquire direct material at a planned price & to analyze performance of the purchasing department in meeting price standards

question

The second version of direct material price variance is:

answer

direct material purchase price variance

question

To compute direct material purchase price variance, use:

answer

actual quantity of direct material purchased

question

direct material purchase price variance equation:

answer

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

question

direct labor rate variance:

answer

portion of spending difference caused by the difference in direct labor rate by a establishing benchmark cost for the actual amount of labor used -deviation between actual & projected direct labor cost caused by difference in direct labor rate

question

projected direct labor cost:

answer

benchmark cost for the actual amount of labor used

question

direct labor rate variance equation:

answer

(actual hours used x actual rate per hour) - (actual hours used x standard rate per hour) = actual hours used (actual rate per hour - standard rate per hour)

question

direct labor efficiency variance equation:

answer

(actual hours used x standard rate per hour) - (standard hours allowed x standard rate per hour) = standard rate per hour (actual hours used - standard hours allowed)

question

Direct labor rate & efficiency add up to:

answer

total direct labor variance -subtract favorable from unfavorable

question

For more than one type of direct material/labor, direct material/labor price & quantity variances are:

answer

computed for each type of direct material/labor then added for total price variance & total quantity variance

question

What must be accounted for when computing standard quantity of direct material?

answer

production loss

question

Considerations for deciding which variances to investigate include:

answer

-absolute size of variance -relative size of variance -variances over $1000 or over 10% of standard cost -variances with trends -controllability

question

Cost variance reports often show:

answer

the magnitude of variances

question

The more controllable the cost item,

answer

the more likely the variance is to be investigated

question

Is it important to investigate significant favorable variances too far for implementations?

answer

Yes because it could indicate a problem

question

The decision to investigate cost is a:

answer

cost benefit decision

question

statistical control chart:

answer

plots cost variances over time & compares them statistically

question

A statistical control chart can help managers:

answer

sort out randomly caused variances from controllable ones

question

In a statistical control chart, the critical value is determined by:

answer

assuming cost variances have a normal probability distribution with a mean of zero

question

In a statistical control chart, the critical value is set at:

answer

some multiple of the distribution's standard deviation

question

In a statistical control chart, variances greater than the critical value:

answer

should be investigated

question

Standard costs, budgets & variances can be used to evaluate:

answer

the performance of individuals & departments

question

Individual performance is used to determine:

answer

employee reward systems

question

Standard costs, budgets & variances can produce:

answer

positive or negative effects

question

The purchasing manager is generally in the best position to influence:

answer

direct material price variances

question

What are some challenges for the purchasing manager?

answer

-direct material shortages -engineering specifications -production department requests

question

Direct material price variance is computed in the production cost based on:

answer

material usage to identify production cost variance attributable to purchasing

question

Direct material purchase price variance is for a more timely report of:

answer

the purchasing manager's success or failure

question

The production supervisor is in the best position to influence:

answer

-direct material quantity variance -employee work schedules for direct labor rate variance -efficient use of employee time for direct labor efficiency variance

question

Production engineers are partially responsible for influencing:

answer

direct material quantity variance

question

Direct labor rate variance generally results from:

answer

using a different mix of employees than anticipated when standards were set

question

Purchase of off standard material can result in:

answer

-favorable direct material price variance -unfavorable direct material quantity variance -unfavorable direct labor rate variance -unfavorable direct labor efficiency increase

question

Interactions among variances make it difficult to:

answer

assign responsibilities for them

question

Under a standard costing system, standard costs of direct material & direct labor are entered in:

answer

work-in-progress inventory

question

Standard costing system is predominant in:

answer

manufacturing companies for cost control & product costing purposes for several decades

question

Advantages of standard costing systems:

answer

-standard costs provide a basis for sensible cost comparisons -computation of standard costs & cost variances enables managers to employ management by exception, which conserves time -variances provide a means of performance evaluation & rewards for employees -variances provide motivation for employees to adhere to standards -provides more stable product costs than if actual production costs were used (periodic change)

question

Criticisms of standard costing systems:

answer

-variances calculated under standard costing are too aggregate a level & come too late to be useful -traditional cost variances are too aggregate and untied to specific product lines or production batches -focuses too much on cost & efficiency of direct labor, which is becoming a relatively unimportant factor of production in manufacturing -a stable production process is one of the most important conditions for the use of standard costing, but flexible manufacturing reduces stability with frequent switching among a variety of products on the same production line -shorter production life cycles mean that standards are relevant for only a short time: when new products are introduced, new standards must be made -traditional standard costs aren't defined broadly enough to capture various important aspects of performance -tend to focus too much on cost minimization rather than increasing product quality or customer service

question

standard cost:

answer

a budget for the production of one unit of product or service

question

Manufacturing cycle efficiency (MCE) equation:

answer

processing time / (processing time + non-value activities [waiting time, inspection time, move time])

Chapter 10 (Managerial Accounting, Hilton, Platt) – Flashcards

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