ACCT 1003- Standard Costs and Balanced Scorecard

What is a variance?

The difference between actual costs and standard costs.

When is a variance favorable?

When actual costs are less than standard costs.

What are the two types of direct materials variances?

- Materials Price Variance (MPV): Difference due to the price paid for materials.

-Materials Quantity Variance (MQV): Difference due to the amount of materials used.

Who is typically responsible for materials price variance?

The purchasing department.

Who is typically responsible for materials quantity variance?

The production department.

What are the two types of direct labor variances?

- Labor Price Variance (LPV): Difference in wages paid vs. standard.

-Labor Quantity Variance (LQV): Difference in hours worked vs. standard.

Causes of labor price variance?

Wage rate differences and workforce misallocation.

Causes of labor quantity variance?

Worker efficiency, training, and machine conditions.

What is the total overhead variance?

The difference between actual overhead incurred and overhead applied to production.

What are the two types of overhead variances?

- Overhead Controllable Variance (price variance)

- Overhead Volume Variance (quantity variance)

What does the overhead controllable variance measure?

Efficiency in controlling overhead costs.

What does the overhead volume variance measure?

Utilization of fixed overhead relative to capacity.

Utilization of fixed overhead relative to capacity.

The appropriate level of management.

How do favorable and unfavorable variances affect the income statement?

- Favorable variances decrease cost of goods sold.

- Unfavorable variances increase cost of goods sold.

What is a balanced scorecard?

An integrated system using financial and nonfinancial measures linked to a company's strategic goals.

What are the four perspectives of a balanced scorecard?

1. Financial

2. Customer

3. Internal Process

4. Learning and Growth

Give examples of financial perspective measures.

Return on assets, net income, earnings per share.

Give examples of customer perspective measures.

Customer retention, response time, brand recognition.

Give examples of internal process perspective measures.

Defect rates, labor utilization, waste reduction.

Give examples of learning and growth perspective measures.

Employee turnover rates, training hours, ethics violations.

What are key benefits of using a balanced scorecard?

- Links high-level goals to shop floor activities

- Provides measurable objectives for nonfinancial goals

- Integrates the company's goals into one system

What is the overhead controllable variance?

The difference between actual overhead and budgeted overhead for standard hours allowed.

What is the overhead volume variance?

The difference due to operating at a capacity different from normal capacity.

Which type of overhead variance relates to variable costs?

Controllable variance.

Which type of overhead variance relates to fixed costs?

Volume variance.