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41 Cards in this Set

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  • Back
The brenchmarks that we will use to compare the actual result with.
Standard cost
Estimated cost to manufacture a unite of product or a service. Includes component of material, labour, and overhead.
Standard cost system
A production costing method that use budget cost per unit.
- Can use with job order or process costing system to provide information for planning, controlling, and decision.
Challenges faced by non-manufacturing business
- Standard cost largely depends the type of the business.
- BUT non-manufacturing business is hard to identify their types.
=> Thus, it is hard to identify an allocation to allocate the overhead, for example.
Standard cost is used in planning, decision making, and performance evaluation & control.
- Decision making: with budgeted cost, we can make decision on projects more quickly with forseeing the expectation.
- By using the variance between actual and budgeted cost, we can correct the problem of exceeding usage and cost more easily to improve the operation performance
-for planning, we can estimate how many quantity, and price for a project.
difference btw actual and standard costs or quantities.
Requirements to create standard cost system
- Judgement and practicality to identify the type of materials and labour to use, and it quantity and price.
- classification of cost according to cost behaviour, valid allocation bases, and a measureable level of activity.
material standards
-the specific direct material to use to manufacturing are required to be identified or listed.
- Quality of the material required
- Quantities needed.

=>All should be clearly defined

-estimations are based on the engineering tests, opinion of people using the materials, and historial data

=> Price will be determined by the purchasing agent who has expertise to estimate standard price
Bill of materials
A document that contains information about product material components, quality of the material, and quantity required for production.
Labour standards
(1) Identify a list of task for labour;
(2) Prepare the operations flow document that include all tasks to make a product or a service
(3) help to identify any non-value added activities for elimination
(4)Labour rate standards should reflect the wages and fringe benefits
Labour fringe benefits
employee-related cost paid by employer will be treated on MOH, or DL. Insurance program or retire plan etc.
operations flow document
a list of all tasks that will require to make a product or a service
overhead standard rates classification
contain predetermine overhead rate that can be classified by:
1) Single plant rate
2) Multiple department rate
3) fixed cost rate
4) variable cost rate
standard cost card
a document contains summary of DM's and DL's standard quantities and prices to complete one product or services. And the standard rate and base for manufacturing overhead.
Normal costing system
use actual DL, DM, and estimated MOH
actual costing system
use actual DL, DM, and MOH
Price variance
Fixed AQ, find (AP-SP)
=> During the period, what was the actual price paid which is different from what the price should be.
Quantity variance
With SP fixed, find (AQ-SQ)=> During the period, it measures the difference of the quantity of actual input and the standard quantity of input allowed for the actual output.
Q = quantity => How it represents?
define x as # of quantities used in each unit and there is total S units
=> Then total quantity, Q = xS
standard quantity allowed
standard quantity of input that should have been used to achieve the actual level of output
F = below the standard or above the standard
=> depend on the situation
=> but it means more efficient
U = above the standard or below the standard
=> depend on the situation
=> less efficient
variance model
| |
v v
Price var. Quantity var.
Material variance
If Q_p = Q_u, use normal variance model


we require to seperate the model into two parts [this is called point of purchase material variance model]:

AQ_pxAP-AQ_pxSP [purchase]
[used] AQ_uxSP--SQ_uxSP

*Note: variance cannot be added since AQ_p != AQ_u
Material price variance
AQ_pxAP-AQ_pxSP [purchase]

=> Difference between amount of money spent above[U] or below [F] for the actual quantity of material purchased.
material quantity variance
the cost saved or expanded because of the difference between actual material used and standard material allowed for actual output produced.
Point of purchase material variance model
Two cases:
(1) Material purchase
(2) Material used

Since materials can be stored, Q_p is possibly different from Q_u
Labour variance
Two variance:
(1) labour rate variance (r)
(2) labour efficiency var (e)

Total variance of point of purchase material model can be added or not?
No. Because Q_p != Q_u, we cannot add the two variance up.
Labour rate variance
The difference due to the total actual labour wages and standard labour rate for the actual labour hours during the period
Labour efficieny variance
The diffence between the actual direct labour hours and the standard allowed labour hours for the actual output multiply by the standard labour rate per hour.
Labour efficiency variance with defective products
If we have defective products, then our SQ should be calculated as [total - defective]*(Standard hours per unit)

Then, our SPxSQ will be reduced, so that we can compare the variance with a tighter bound to reflect the defective products(P.272)
Variable overhead variance
Two cases:
(1) VOH spending variance
(2) VOH efficiency variance

AD = divers = DLH usually if labour intensive

VOH spending variance
The diffence between total actual VOH and the budget VOH based on actual input.
VOH efficiency variance
The difference between "budgeted" variable overhead at actual input activity, and the "standard" variable overhead at standard input activity allowed.
Fixed overhead variance
Two cases:
(1) FOH spending variance
(2) FOH volume variance
over(under)applied VOH variance
If F, actual < applied, then overapplied VOH

If U, actual > applied, then underapplied VOH
FOH spending variance
The diffence between actual FOH and budgeted FOH.
FOH volume variance
The difference between budgeted FOH and the applied fixed OH (i.e. standard FOH rate times standard input allowed =[standard Q per unit x actual units ])
Standard FOH rate
Used annual data:
= Budgeted fixed overhead/ Budgeted level of activity i.e. budgeted quantity
FOH volumn variance (2)
If standard input allowed < budgeted level of activity [i.e. the denominator of standard FOH rate], then it means standard input allowed is less efficient than budgeted => Unfavourable

e.g. budgeted MH = 100, and
actual MH for standard input allowed = 20. And MH implies productivity. Thus, SIA < budgeted [expected], we are less efficient