ch 10 acc: Standard Costs and Variances - Managerial Accounting

A set of flashcards summarizing key concepts about standard costs, variances, and their significance in managerial accounting.

What are standards in managerial accounting?

Standards are benchmarks or 'norms' for measuring performance.

What are the two types of standards commonly used in managerial accounting?

Quantity standards and price standards.

What do quantity standards specify?

How much of an input should be used to make a product or provide a service.

What do price standards specify?

How much should be paid for each unit of the input.

What is included in setting direct materials standards?

Standard price per unit, summarized in a bill of materials, and standard quantity per unit.

How is the standard price per unit determined?

It is the final delivered cost of materials, net of discounts.

What are the steps to set direct labor standards?

Use time and motion studies for each labor operation, determine standard hours per unit, and establish a standard rate per hour.

How is the variable manufacturing overhead rate determined?

It is the variable portion of the predetermined overhead rate.

What is the purpose of a standard cost card?

To summarize the costs associated with producing one unit of product.

What do spending variances become more useful when broken down into?

Price and quantity variances.

What is the difference between quantity variance and price variance?

Quantity variance is the difference between actual quantity and standard quantity, while price variance is the difference between actual price and standard price.

Why are price and quantity standards determined separately?

The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.

What is shown in variance analysis for materials?

Materials quantity variance and materials price variance.

What formula is used to compute the materials price variance (MPV)?

MPV = (AQ × AP) - (AQ × SP) = AQ(AP - SP).

Who is responsible for the materials price variance?

The Purchasing Manager.

Who is responsible for the materials quantity variance?

The Production Manager.

What is a potential problem with variances?

If variances are misused, employee morale may suffer and dysfunctional decisions may occur.

How can excessive emphasis on meeting standards be detrimental?

It may overshadow other important objectives such as maintaining quality, on-time delivery, and customer satisfaction.