MGMT 201 Chapter 10

Controllability

The extent to which managers are able to control or influence a cost or cost variance.

Cost Variance

The difference between actual and standard cost.

Cost Variance Analysis

The process of systematically comparing expected costs (standards) against actual costs, analyzing the differences, and explaining significant deviations.

Direct-Labor Efficiency Variance

The difference between actual and standard hours of direct labor multiplied by the standard hourly labor rate.

Direct-Labor Rate Variance

The difference between actual and standard hourly labor rate multiplied by the actual hours of direct labor used.

Direct-Material Price Variance

The difference between actual and standard price of direct material used in production, multiplied by the actual quantity of material used.

Direct-Material Purchase Price Variance

The difference between the standard price and the actual price paid for direct material purchased, multiplied by the actual quantity of material purchased.

Direct-Material Quantity Variance

The difference between actual and standard quantity of materials allowed, given actual output, multiplied by the standard price.

Favorable Variance

Sometimes abbreviated F, a cost variance is designated as favorable when spending on that element of cost is lower than the spending anticipated during the planning process.

Management by exception

A managerial technique in which only significant deviations from expected performance are investigated.

Perfection (or Ideal) Standard

The cost expected under perfect or ideal operating conditions.

Practical (or Attainable) Standard

The cost expected under normal operating conditions.

Standard Cost

A predetermined cost for the production of goods or services that serves as a benchmark against which to compare the actual cost.

Standard-Costing System

A cost-control and product-costing system in which cost variances are computed and production costs are entered into work-in-process inventory at their standard amounts.

Standard Direct-Labor Quantity

The number of labor hours normally needed to manufacture one unit of a product.

Standard Direct-Labor Rate

Total hourly cost of compensation, including fringe benefits.

Standard Direct-Material Price

The total delivered cost, after subtracting any purchase discounts taken.

Standard Direct-Material Quantity

The total amount of material normally required to produce a finished product, including allowances for normal waste and inefficiency.

Standard Quantity Allowed

The standard quantity per unit of output multiplied by the number of units of actual output.

Statistical Control Chart

A plot of cost variances across time, with a comparison to a statistically determined critical value.

Task Analysis

Setting standards by analyzing the production process.

Unfavorable Variance

Sometimes abbreviated U, a cost variance is designated as unfavorable when spending on that element of cost is higher than the spending anticipated during the planning process.