Chapter 24 - Accounting

Standard costs

Predetermined costs used to measure performance.

Standard vs Budget

Standard = per unit; Budget = total amount.

Standard most companies use

Normal standards (realistic and attainable).

Favorable variance

When actual costs are less than standard costs.

Unfavorable variance

When actual costs are greater than standard costs.

Total variance

The difference between total actual costs and total standard costs.

Components of total variance

Materials, labor, and overhead.

Materials price variance

The difference between actual price and standard price.

Materials quantity variance

The difference between actual quantity used and standard quantity.

Responsible for materials price variance

Purchasing department.

Responsible for materials quantity variance

Production department.

Labor price variance

Difference between actual wage rate and standard rate.

Labor quantity variance

Difference between actual hours worked and standard hours.

Causes labor price variance

Paying different wages or using different workers than expected.

Causes labor quantity variance

Worker efficiency (taking more or less time).

Total overhead variance

Difference between actual overhead and applied overhead.

2 types of overhead variances

Controllable (price) and volume (quantity).

Overhead controllable variance

How well overhead costs are controlled.

Overhead volume variance

If production level was higher or lower than expected.

Balanced scorecard

A system that measures performance using financial and nonfinancial data.

4 balanced scorecard perspectives

Financial, customer, internal processes, learning & growth.

Management by exception

Focusing only on significant variances.

How variances are shown on income statement

Favorable decreases COGS, unfavorable increases COGS.