Exam 8: Flexible Budgets, Standard Costs and Variance Analysis

The standard cost of direct labour is computed as the standard price per labour hour multiplied by the standard labour hours per unit of output.

Variance analysis involves calculating variances and preparing journal entries.

The preparation of the flexible budget eliminates the variance caused by volume differences in overall activity.

Variances are differences between budgeted and actual results.

Variance analysis involves the steps listed below. In which order should the steps be performed? 1 Draw conclusions and take action 2 Calculate variances 3 Choose variances for further investigation 4 Identify reasons for variances

If actual costs are less than budgeted costs then the variance will be:

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. Actual sales and production was 22,000. Actual direct material cost was $220,000. The flexible budget variance for direct materials the year is:

If a variance analysis shows that operations are better than expected, managers should:

Managers should consider possible interactions between incentives and variances because:

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. Calculate the standard cost for one frog.

The standard cost of fixed overhead is calculated by:

In a production setting, the standard cost of a unit of output is the sum of the standard costs of:

To establish standard costs organisations need to identify the standard usage of resources and the standard costs of resources.

It is not possible to calculate a standard cost of fixed overhead as fixed overhead is not determined by units of output.

Ideal standards assume perfect operating conditions that achieve maximum efficiency.

A flexible budget uses the variable cost information from the static budget but changes the fixed costs to reflect actual volume.

The static budget compared to flexible budget will compute a volume variance.

There are two types of standards; ideal standard and efficient standard.

The process of calculating variances and analysing the reasons they occurred is called:

Standard cost variances can be broken down into: