Chapter 2 - Direct Costs Flashcards Preview

AAT Decision & Control L4 AQ2016 > Chapter 2 - Direct Costs > Flashcards

Flashcards in Chapter 2 - Direct Costs Deck (36)
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1

What is a standard costing system?

Standard costing system calculates the expected costs of a product. It then monitors and controls the performance by comparing actually costs with standard costs.

2

What is a budgetary control system?

It involves agreeing financial plans for all areas of an organisation that coordinates activities. These budgets are then used to compare the actual performance so that appropriate actions can be taken if needed

3

What are some advantages of standard costing.

1) to help with decision making such as pricing.
2) to help plan the future of the organisation such as resources for future production.
3) to help monitor and control costs such as variances.

4

What are the three types of standards?

1) Ideal/Current standard - no allowance for inefficiency of labour or material wastage.

2) Attainable/Normal standard - allows for a small amount of wastage and inefficiency.

3) Basic/Target standard - is an historical standard that allows comparisons to be carried out over long periods of time

5

What is Strategic Management?

Concerned with long term planning and decision making.

Applies to ideal and attainable standards.

6

What is Operational Management?

Concerned with the day to day activities within an organisation.

Applies to attainable standards and actual results

7

What is exception reporting/tolerance levels/control limits?

The practice of reporting only the information which is significant. For example: only reporting variances that are over the agreed tolerance level (500 adv or 500 fav)

8

Give 2 examples of short term changes in variances

1) a price variance due to a change in suppliers because the original supplier has no stock.
2) a machine has temporarily broken and therefore causing excess wastage of material.

9

Give 2 examples of long term changes in variances

1) wages have increased and therefore the labour rate standard will need to be amended to prevent future variances
2) general price increases for material will need to be included in standard to prevent future variances. This usually occurs annually due to inflation etc.

10

Examples of direct costs?

Direct labour
Direct materials
Direct expenses

11

Examples of indirect costs?

Variable overheads
Fixed overheads

12

What are the 2 causes of direct material variances?

1) material usage
2) material price per unit

13

What are the 2 causes of direct labour variances?

1) Labour efficiency
2) labour rate per hour

14

What’s the calculation for Total Direct Material Variance?

The STANDARD cost of materials for the actual production level

Minus

The ACTUAL cost of materials for the actual production level

15

What is the calculation for Direct Material Usage Variance? (Top)

The STANDARD quantity of material for actual production at standard price

Minus

The ACTUAL quantity of material at a standard price

16

What is the calculation for Direct Material Price Variance? (Bottom)

The STANDARD cost of actual quantity of material used

Minus

The ACTUAL cost of the actual quantity of material used.

17

What does PAUS mean?

Price variances are based on
Actual quantities, but
Usage variances are based on
Standard prices

18

What’s the calculation for Total Direct Labour Variance?

The STANDARD cost of labour for the actual production level

Minus

The ACTUAL cost of labour for the actual production level

19

What’s he calculation for Direct Labour Efficiency Variance? (Top)

The STANDARD labour hours for actual production at standard rate

Minus

The ACTUAL labour hours used at standard rate

20

What’s the calculation for Direct Labour Rate Variance? (Bottom)

The STANDARD cost of the actual labour hours used

Minus

The ACTUAL cost of the actual labour hours used

21

What is meant by idle time?

Employees being paid but not actually working on production. For example: machines being serviced but employees are still paid

22

What is the calculation for Direct Labour Idle Time Variance?

Actual PRODUCTIVE labour hours used at standard rate

Minus

TOTAL actual labour hours used at standard rate

23

What is the calculation for Labour Efficiency Variance when there is idle time included?

Standard labour hours for actual production at standard rate

Minus

Actual PRODUCTIVE labour hours used at standard rate

24

What is the calculation for Direct Material Price Variance based on the quantity of materials bought?

The STANDARD cost of the actual quantity of materials bought

Minus

The ACTUAL cost of the actual quantity of materials bought

25

Reconciliation of standard and actual costs

Standard cost
+ adverse variance
- favourable variances
= Actual cost

26

Why use a standard costing system(SCS) ?

An effective SCS will be able to provide cheap and accurate information in almost real time which leads to quick actions being made.

27

Disadvantages of a standard costing system (scs)?

• May reveal hidden inefficiencies
• increase cost consciousness of the workforce if monitoring costs
• exception reporting -> results only reported when they’re outside a predetermined range set by managers

28

What type of management is the link between ideal and attainable standards??

Operational or strategic management and why?

Strategic management -

Concerned with long term planning and decision making

29

What type of management is the link between attainable and basic standards?

Operational or strategic management and why?

Operational management -

Focuses on the day to day activities taking place with the organisation

30

An advantage and disadvantage for ideal standards

Advantage - continuous improvements in work methods

Disadvantage - not ideal for planning purposes as results are inaccurate. Resources (materials and labour hours) are under-estimated to prevent wastage or inefficiency.