Management Accounting (MA) Standard Costing and Variance Analysis Flashcards
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Read the first 7 Management Accounting (MA) Standard Costing and Variance Analysis flashcards as text
In a standard costing operating statement, what is the typical starting point?
Answer: Budgeted profit (or contribution)
An operating statement starts with budgeted profit, then adds or deducts variances to reconcile to actual profit, bridging planned to actual performance.
Which department is typically held responsible for an adverse direct material price variance?
Answer: Purchasing department
The purchasing department negotiates and pays for raw materials, making it accountable for paying more or less than the standard price.
Which of the following is most likely to cause a favourable direct labour efficiency variance?
Answer: Workers using a higher-grade material that is easier and faster to process
Higher-grade material that is easier to work with reduces processing time, allowing workers to complete output faster than the standard time allows.
What does an idle time variance represent?
Answer: The cost of hours paid to workers during which no production occurred
Idle time variance = Idle hours × Standard labour rate, representing wages paid during periods when workers are available but not productively employed.
The purpose of splitting variances into planning and operational components is to:
Answer: Separate variances caused by poor original planning from those caused by operational performance
Planning variances reflect changes between the original and revised standard due to environmental changes, while operational variances measure actual performance against the revised standard.
If actual profit exceeds budgeted profit, what must be true of the net total of all variances for the period?
Answer: The net total of all variances must be favourable
All variances together bridge budgeted profit to actual profit; if actual profit exceeds the budget, the net effect of all variances must be favourable.
A company uses attainable standards. This means the standards:
Answer: Can be achieved by an efficient and motivated workforce under normal working conditions
Attainable standards allow for normal levels of waste and downtime but exclude inefficiency; they are challenging but achievable and are the most commonly used type in practice.