CH 24: Standard costs and Balanced Scoreboard

what are standard costs

they are predetermined unit costs that companies use as measures of performance

what are some pros to standard costs

• make management planning easier

• promote a better economy by making getting employees to be allocatively resourceful

• help assign selling prices

• provide a basis to compare the actual results to

• help highlight variances

• simplify inventories and reduce clerical costs

what are the similarities between standards and budgets

both are

• predetermined costs

• contribute to management planning

what is the difference between standards and budgets

standards are UNIT amounts

budgets are TOTAL amounts

what are some important things to keep in mind when setting standard costs

• when setting standards costs its important to get input from everyone who has responsibility for cost and quantities

• standard costs have to be CURRENT

• need to determine if the existing standard is a good/bad measure or performance

At what two levels do companies set standard costs

they set standards cost at

• IDEAL standards

• NORMAL standards

what are ideal standards

represent the optimal levels of performance under PERFECT operating conditions

• not really practical

what are normal standards

represent efficient standards that ARE ACTUALLY attainable under expected operating conditions

normal standards should be rigorous but achievable to motivate employees to realistic standards

Most companies that use standards set them at a(n)

a. optimum level.

b. ideal level.

c. normal level.

practical level.

normal level

what is direct materials standards?

The unit cost of direct materials that should be incurred

what is direct materials quantity standard

it is the # of units of direct materials that should be used per unit of finished goods

what is standard direct materials cost per unit

the standard direct materials price x standard direct materials quantity

The direct materials price standard should include an amount for all of the following except:

a. receiving costs.

b. storing costs.

c. handling costs.

d. normal spoilage costs.

normal spoilage costs.

what is direct labor price standard?

The per hour rate that should be incurred for direct labor

what is the direct labor quantity standard

the amount of time mgmt. has determined it should take to make one unit of product ex. it take 4 hours to make 1 desk

what is standard direct labor cost per unit of finished good

standard direct labor rate x standard direct labor hours

how is standard predetermined overhead rate set

Overhead rate is determined by dividing budgeted overhead costs by an expected standard activity index

what is total standard cost per unit

the sum of standrd costs of DM + standard DL+ MO

what is a variance

difference between TOTAL actual costs and TOTAL standard cost

when actual costs < standard costs. the variance is

Favorable

when actual costs > standard costs. variances are

Unfavorable

A variance is favorable if actual costs are:

a. less than budgeted costs.

b. less than standard costs.

c. greater than budgeted costs.

d. greater than standard costs

b. less than standard costs.

remember variance have to do with standard cost not budgeted

what are material price variance: and who is responsible for this variance

Factors that affect price paid of raw materials

include things like

• quality of materials requested

• delivery method

• availability of quantity and cash discount

the purchasing dpt.

what is a primary cause if a materials quantity variance

• inexperienced workers

• faulty machinery

• carelessness

the production dpmt is responsible for these variances

what is a primary cause of a labor price variance and who should be held responsible?

a labor price variance usually happens as a result of two factors:

1. Paying workers different wages than expected

2. misallocation of workers

the manager who authorized a wage increase is responsible. the production depot is generally responsible for labor price variances. that come from the misallocation of workforce

what causes a labor quantity variance ?

• the efficiency of worker

• traced to production department

what do overhead controllable variance show

Overhead controllable variance (price variance) shows whether overhead costs are effectively controlled.

what do overhead volume variance show

Overhead volume variance (quantity variance) relates to whether fixed costs were under- or over-applied during the year

Which of the following is incorrect about variance reports?

They facilitate “management by exception.”

They should only be sent to the top level of management.

They should be prepared as soon as possible.

They may vary in form, content, and frequency among companies.

They should only be sent to the top level of management.

Which of the following would not be an objective used in the customer perspective of the balanced scorecard approach?

Percentage of customers who would recommend product to a friend

Customer retention

Brand recognition

Earning per share

earning per share

summarize a balance scorecard

• Uses both financial and nonfinancial measures
  It looks at money-related results (like profit) and other important factors (like customer satisfaction or employee performance).

• Connects big goals to everyday work
  High-level company goals are communicated all the way down to employees on the shop floor.

• Sets measurable objectives for nonfinancial things
  Even things that aren’t about money, like quality or customer service, have clear targets.

• Balances all goals in one system
  Makes sure no single goal gets too much attention, so managers focus on everything that matters, not just profits.

Think of it like a report card that grades a company on all the important areas, not just money.