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34 Cards in this Set

  • Front
  • Back
standard cost
a cost that management believes should be incurred to produce a good or service. refers to the cost of a single unit.
budgeted cost
refers to the total cost for the total number of units produced.
formula for standard cost
standard cost=
standard quantity x standard price
standard quantity
may be established for direct materials in engineering plans, recipes, or formulas
standard price
often determined from price lists provided by suppliers.
how standard price (wage rate) for direct labor is established
by management or through labor contracts.
how standard quantity (hours)can be determined
by time and motion studies or from historical data.
predetermined overhead rate =
(budgeted overhead costs) / (standard quantity of allocation base)
ideal standards
are developed under the assumption that nothing will go wrong. some managers feel this makes employees strive for perfection.
attainable standards
are developed under the assumption that a certain amount of defects and breakdowns are to be expected. most managers feel these are preferable.
standard cost variance
the difference between a standard and an actual cost
variance analysis
the division of a standard cost variance into two components.
the variance is unfavorable when
the actual cost is greater than the standard cost
the variance is favorable when
the actual cost is less than the standard cost
material price variance
the difference between the actual price paid per unit and the standard price paid per unit
material price variance =
([actual price per unit] - [standard price per unit]) x (actual quantity purchased)
material quantity variance =
([actual quantity used] x [standard price]) - ([standard quantity allowed] x [standard price])
direct labor rate variance
the difference between the actual hourly rate and the standard hourly rate times the actual hours worked
direct labor variance =
([actual hourly rate] - [standard hourly rate]) x (actual hours worked)
direct labor efficiency variance
the difference between the actual hours worked and the standard hours allowed for the number of units produced times the standard hourly rate
direct labor efficiency variance =
(AH-SH) x SR

([actual hours worked]-[standard hours allowed for total units produced]) x (standard hourly rate)
material quantity variance
the difference between the actual quantity of material used and the standard quantity of material allowed for the number of units produced times the standard price
material quantity variance =
(AQ-SQ) x SP

([actual quantity used]-[standard quantity allowed for the units produced]) x (standard price per unit)
controllable overhead variance
the difference between actual overhead and the amount of overhead that would be included in a flexible budget for the actual level of activity.
controllable overhead variance =
(actual overhead) - (flexible budgeted overhead for actual production level)
overhead volume variance
indicates whether the actual level of production was greater than or less than the level anticipated when the standard overhead rate was developed
overhead volume variance =
(flexible budgeted overhead for actual production level) - (overhead applied to production using the standard overhead rate)
the financial impact of operating at a level other than planned capacity is measured by
multiplying the difference in units by the unit contribution margin
if a company utilizes more capacity than planned
profits will increase
if a company utilizes less cpacity than planned
profits will decrease
variances are indicators of
potential problem areas
it can be determined that costs are being effectively controlled
only through investigation and the discovery of the root cause(s)
management by exception
approach in which only those variances deemed as significant are investigated.
can be defined as an absolute dollar amount or as a percent of actual or standard cost