Exam 8: Flexible Budgets, Standard Costs and Variance Analysis

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. Praductim Input Standard Cast Direct Materials 2 kilos of raw material Each kilo =\ 5 Direct Labour 1 hour Direct Labour is charged at \ 10 per hour Variable Overhead \ 2 per direct labour hour Fixed Overhead \ 4 per frog Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45. The static budget for direct materials the year is:

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget variance for variable costs in June is:

Price variances analyse:

Variance analysis includes which of the following processes? I $\quad$ Calculating variances II $\quad$ Choosing variances for further investigation III $\quad$ Predicting variances in future periods

When actual costs exceed budgeted costs the variance will be favourable.

Expected costs per unit of input are called:

The starting point for variance analysis is to compare the static budget to actual costs to determine volume variance.

If a variance is considered to be random or not expected to recur the appropriate management action is to delete the variance from the accounting records.

Standards costs cannot be used for new products as no information about resource use is available.

A _______________ is a set of cost relationships that can be used to estimate costs for any level of operations within the relevant range.

A standard cost variance is the difference between a standard cost and an actual cost.

Calculating the dollar amount of a variance is all that is required for decision making.

Variances are calculated for which of the following reasons:

Standard costing allows management to: I $\quad$ Plan operations II $\quad$ Monitor Performance III $\quad$ Control costs

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget variance for variable costs is due to:

Management by exception refers to investigating all variances.

The use of standard costs is suited to organisations which produce highly customised goods or services.

Managers choose which variance to investigate by considering the amount of the variance and any other relevant factors such as changes in trends.

Standards which assume normal operating conditions are called:

Currently attainable standards assume normal operating conditions which make allowances for inefficiencies in the production process.