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Chapter 11 ACCT

Standard Cost
budget cost per unit of product
– standard unit amount
Advantages of Standard Cost
a. facilitate management planning
b. promote greater economy
c. useful in setting sales price
d. contribute to management control
e. permit “management by exception”
f. Simplify costing of inventories and reduce clerical cost
Direct Materials Price Standard
1. set by delivered cost of raw materials + allowance for handling and receiving
Direct Material Quantity Standard
1. set by required quantity + allowance for waste and spoilage
Direct Labor Price Standard
1. set by current wages and adjustments (COLA, payroll taxes, fringe benefits)
Direct Labor Quantity Standard
1. set by required production time + an allowance for rest periods, clean up, set up and downtime
Manufacturing Overhead
1. Standard predetermined overhead rate
2. And standard expected activity level index
Direct material Variance Total
(AP x AQ) – (SP x SQ)
Direct materials price Variance
(AP x AQ) – (AQ x SP)
Direct Materials Quantity Variance
(AQ x SP) – (SQ x SP)
Direct Labor Variance Total
(AH x AR) – (SH x SR)
Direct Labor Price Variance
(AH x AR) – (AH x SR)
Direct Labor Quantity Variance
(AH x SR) – (SH x SR)
Total Manufacturing Overhead Variance
(Actual Overhead) – (Overhead applied at standard hours allowed)
Variance Report
-management by exception
-income statement
-standard costing system
sales
-standard COGS
+/- Variances
=
Actual Gross Profit
Balanced Score Card
financial and non financial measures that links performance to company’s goals.
Balanced Score Card 4 objectives
1. Financial
2. Customer
3. Internal Process
4. Learn and Grow
Balanced score Card Objectives
1. employees both financial and non financial
2. creates links between top to bottom tiers
3. provides measurable objectives for non financial measures
4. Single performance system – all is weighted equally
An approach that incorporates financial and non financial measures in an integrated system that links performance measurement and a company’s strategic goals
Balanced score card
A viewpoint employed in balanced score card to evaluate the company from the perspective of the people who buys and use it’s product
Customer perspective
The rate per hour that should be incurred for Direct Labor
Standard Direct Labor Price
The time that should be required to make one unit of product
Direct Labor Standard quantity
The cost per unit of direct materials that should be incurred
Direct Materials Price Standard
The quantity of direct materials that should be used per unit of finished goods
Direct materials Quantity Standard
A viewpoint employed in the balanced scorecard to evaluate a company’s performance using financial measures
Financial perspective
standards based on optimum level of performance under perfect conditions
Ideal standards
A viewpoint employed in the balanced scorecard to evaluate the effectiveness and efficiency of a company’s value chain, including product development, production, delivery and after sale service
Internal Process Perspective
A viewpoint employed by the balanced scorecard to evaluate how well a company develops and retains its employees.
Learn and growth perspective
The average activity output that a company should experience over the long run
Normal Capacity
Standards based on efficient level of performance that are attainable under expected operating conditions
Normal Standards
The difference between actual overhead incurred and overhead budgeted for the standard hours allowed
Overhead controllable variance
The difference between normal capacity hours and standard hours allowed times the fixed overhead rate
Overhead Volume variance
A double entry system of accounting in which standard cost are used in making entires, and variances are recognized in the accounts
Standard Cost Accounting systems
Predetermined unit cost which companies use as measurements of performance
Standard Cost
The hours that should have been worked for the units produced
Standard hours allowed
An overhead rate determined by dividing budgeted overhead cost by an expected standard activity index
Standard predetermined overhead rate
The difference between total actual cost and total standard cost
Variance
Has management accomplished its price and quantity objectives regarding materials?
1. actual cost and standard cost of materials
(materials price and quantity variance)
Positive – favorable difference – price and quantity have been met
Standards differs from budgets in that…
a. budgets but not standards may be used in valuing inventories
b. budgets not standards may be journalized and posted
c. budgets are a total amount and standards are a unit amount
d. only budgets contribute to management planning and control
c. budgets are a total amount and standards are a unit amount
Has management accomplished its price and quantity for labor objectives?
1. actual cost and standard cost of labor
(Labor price and quantity variances)
Positive – favorable – price and quantity objectives met
Has management accomplished its objectives regarding manufacturing overhead?
1. actual cost and standard cost of MOH
(Total manufacturing overhead variance)
Positive – favorable- manufacturing overhead objectives have been met
Standard cost are:
a. imposed by government agencies
b. are predetermined unit costs which companies use as measures of performance
c. can be used by manufacturing companies by not by service or profit companies
d. All of the above
b. are predetermined unit costs which companies use as measures of performance
The advantages of standard cost include all of the following except:
a. management by exception may be used
b. management planning is facilitated
c. they may simplify the costing of inventories
d. management must use a static budget
d. management must use a static budget
Normal standards:
a. allow for rest periods, machine breakdowns, and set up time
b. represents level of performance under perfect conditions
c. are rarely used because managers believe they lower workforce moral
d. are more likely than ideal standards to result in unethical practices.
a. allow for rest periods, machine breakdowns, and set up time
The setting of standards is:
a. a managerial accounting decision
b. a management decision
c. a work decision
d. preferably set at the ideal level of performance
b. a management decision
Each formula is correct expect:
a. LPV = (AH x AR) – (AH x SR)
b. TOHV = (actual overhead) – (applied overhead)
c. MPV = (AQ x AP) – (SQ x SP)
d. LQV = (AH x SR) – (SH x SR)
c. MPV = (AQ x AP) – (SQ x SP)
In producing product A, 6,300 lb. of direct materials were used at cost of $1.10 per lb. The standard was 6,000 lb. at $1.00 per lb.. The direct materials quantity variance =
a. $ 330 U
b. $300 U
c. $600 U
d. $630 U
b. $300 U
(6,300 x 1.00) – (6,000 x 1.00)
(AQ x SP) – (SP x SQ)
In producing product z, 14,800 DL hours were used at rate of $8.20 per hour. The standard was 15,000 DL hours at $8.00 per hour. The direct labor:
a. Quantity variance is $1,600 F
b. Quantity variance is $1,600 U
c. Price Variance is $3,000 F
d. Price Variance is $3,000 U
a. Quantity variance is $1,600 F
(AH x SR) – (SH x SR)
(14,800 x 8) – (15,000 x 8)
Which of following is correct about total overhead variance?
a. Budgeted overhead and applied overhead are the same
b. total actual overhead is composed of variable overhead, fixed costs, and period costs
c. Standard hours actually worked are used in computing the variance
d. Standard hours allowed for the work done is the measure used in computing the variance
d. Standard hours allowed for the work done is the measure used in computing the variance
The formula for computing the total overhead variance is:
a. actual overhead – overhead applied
b. overhead budgeted – overhead applied
c. actual overhead – overhead budget
d. none
a. actual overhead – overhead applied
Which is incorrect about variance reports?
a. They facilitate “management by exception”
b. they should only be sent to top levels of management
c. they should be prepared as soon as possible
d. they may vary in form, content and frequency among companies.
b. they should only be sent to top levels of management
In using variance reports to evaluate cost control, management normally looks into:
a. all variances
b. favorable variances only
c. unfavorable variances only
d. both favorable and unfavorable variances that exceed a certain predetermined quantitative measure such as percentage or dollar amount.
d. both favorable and unfavorable variances that exceed a certain predetermined quantitative measure such as percentage or dollar amount.
Generally accepted accounting principals allow a company to:
a. report inventory at standard cost but cost of goods sold must be reported at actual cost
b. report cost of goods sold at standard cost, but inventory must be reported at actual cost
c. report inventory and cost of goods sold at standard costs as long as there are no significant differences between actual and standard costs
d. report inventory and cost of goods sold at actual cost. standard is never allowed.
c. report inventory and cost of goods sold at standard costs as long as there are no significant differences between actual and standard costs
Which of the following would not be an objective used in the customer perspective of the balanced scorecard approach?
a. percentage of customers who would recommend product to a friend
b. customer retention
c. Brand recognition
d. Earnings per share
d. Earnings per share

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