CHAPTER 23- Performance Evaluation Using Variances from Standard Costs – Flashcards

Currently attainable standards, sometimes called normal standards, can be attained with reasonable effort. Such standards, which are used by most companies, allow for normal production difficulties and mistakes.

The differences between actual and standard costs are called costs variances. A favorable cost variance occurs when the actual cost is less than the standard cost (at actual volumes). An unfavorable cost variance occurs when the actual cost exceeds the standard cost.

A favorable cost variance occurs when the actual cost is less than the standard cost (at actual volumes). An unfavorable cost variance occurs when the actual cost exceeds the standard cost.

The total direct materials variance is separated into a price and quantity variance.

Direct labor time variance Direct labor rate variance

The report that summarizes actual costs, standard costs, and the differences for the units produced is called a budget performance report

Direct Materials Price Variance = (Actual Price - Standard Price) x Actual Quantity Direct Materials Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price

A nonfinancial performance measure expresses performance in a measure other than dollars. Nonfinancial measures can be linked to either the inputs or outputs of an activity or process. A process is a sequence of activities linked together for performing a particular task. Inputs Number of employees Employee experience Employee training Fryer reliability Number of new menu items Fountain drinks available Outputs Line wait Percent order accuracy Friendly service score

Factory overhead costs are more difficult to analyze than direct labor and materials costs. This is because factory overhead costs have fixed and variable cost elements.