Understanding Variance Analysis and Standard Costing

Flashcards based on key concepts related to variance analysis and standard costing.

Variance Analysis

The process of identifying and calculating the difference between actual and budgeted outcomes to implement corrective measures.

Flexible Budgets

Budgets that adjust the original budgeted amounts based on the actual level of activity.

Standard Costing

A cost accounting method that uses standard costs for direct materials, labor, and overhead, facilitating variance analysis.

Ideal Standards

Standards that demand maximum efficiency and are only achievable under perfect operating conditions.

Practical Standards

Standards that can be achieved under efficient operating conditions without requiring maximum efficiency.

Kaizen Standards

A type of practical standard that reflects planned improvements.

Favorable Variance

A variance that increases income by indicating performance better than the standard.

Unfavorable Variance

A variance that decreases income by indicating performance worse than the standard.

Material Price Variance

The difference between the actual cost of direct materials used and the standard cost allocated for those materials.

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours allowed for the actual output.

Sales Variance

The difference between the actual sales and the budgeted sales, including price and volume variances.