Standard costing is a useful accounting tool for determining performance and cost control. As a result, in this post, we’ll go through the top 40 questions and answers-standard costing and variance analysis.
It will give you a simple understanding of Standard Costing and Variance Analysis.
So let’s get started.
Questions and Answers- Standard Costing and Variance Analysis
Question-01: What is the standard cost?
Answer: A standard cost is a cost of producing a single unit or a group of product units over a specific time period in the near future. It’s a product’s anticipated cost under current or anticipated operating conditions.
Question-02: What are the purposes of standard costs?
Answer: The purposes of standard costs are as follows:
- Planning Budget.
- Using variance analysis to monitor costs and measure efficiencies
- Aids in cost reduction
- It is necessary to assess the stock.
Question-03: What are the benefits or advantages of a standard cost system?
Answer: The advantages of standard cost system are as follows:
- The standard cost system often defects inefficiencies by a thorough analysis of cost.
- By measuring employee’s performance by standard costs manager can easily delegate powers to the appropriate hand.
- Standard costs help to evaluate the stock more efficiently where it prevents any kind of misuse of raw materials.
Question-04: What are the limitations of standard costing?
Answer: The limitations of standard costing are as follows:
- For companies that manufacture heterogeneous goods and the design of the production is dependent on customer specifications or orders, a standard costing method is ineffective.
- A technical hand is needed to establish a standard that may face severe difficulty.
Question-05: What’s the difference between standard and budget?
Answer: A budget emphasizes cost levels that should not be exceeded. On the other hand, a standard emphasizes the levels to which costs should be reduced.
Question-06: What are the similarities between budget and standard?
Answer: In terms of approach and measurement, budgets are similar to standard costs. If standard costs are known, budgeted costs can be calculated by applying ratios to them.
Question-07: What is the difference between a standard cost and an estimated cost?
Answer: The differences between standard cost and estimated cost are as follows:
- Estimated costs are rough estimates based on previous experience. Standard costs, on the other hand, are calculated using standard rates that have been carefully developed and set in a scientific manner.
- Those companies that use the historical costing system rely on estimated costs, while those organizations that use standard costing use standard costs.
Question-08: What are the types of standards?
Answer: The types of standards are as follows:
- Basic Standards
- Normal standards
- Current standards
- Attainable standards
- Ideal Standards
Question-09: What are basic standards?
Answer: Basic standard is a yardstick that remains unchanged over a long period.
Question-10: What are normal standards?
Answer: These are such standards that are anticipated if normal conditions prevail. Under normal standards, it is assumed that the conditions will be normal which means any unusual circumstances will not occur whether favorable or unfavorable.
Question-11: What are current standards?
Answer: These standards are representative of current business conditions. It is a good yardstick to measure the performance, challenging in nature but attainable.
Question-12: What are attainable standards?
Answer: these standards are based on current conditions and circumstances where the standard can be achieved if the current condition prevails.
Question-13: What are ideal standards?
Answer: These standards represent what business operations would be under an ideal set of circumstances that means no wastage or scrap, no breakdown, no stoppages, no inefficiencies.
Question-14: How many standards must be developed for materials cost? And what are they?
Answer: Two standards must be developed for materials cost, which are as follows:
- A Materials price Standard
- A material Quantity Standard
Question-15: What is direct material price variance? and What are the reasons for Material price variances?
Answer: The difference between the actual purchase price and the standard purchase price of products is known as the direct material price variance.
The reasons for material price variances are as follows:
- Fluctuations in market price.
- Using cheaper materials or vice versa.
- Incorrect setting of standard
- Changes in price policies.
Question-16: What is the formula for calculating direct material price purchase variance?
Answer: The formula for calculating direct material price purchase variance is as follows:
Direct material price variance = {Actual Quantity Purchased (AQ) * Actual Price (AP) – Actual Quantity Purchased (AQ) * Standard Price (SP)}
Question-17: What is the formula for calculating direct materials Price usage variance?
Answer: Direct materials price usage variance= {Actual Quantity Used (AQ)*Actual Price (AP) – Actual Quantity Used (AQ)*Standard Price (SP)}
Question-18: What is Materials quantity or usage variance?
Answer: Materials quantity variance is the difference between the quantity of materials used in production and the quantity set as a standard.
Question-19: What is the reason for quantity or usage variances?
Answer: The reason for quantity variances are as follows:
- Careless handling of materials
- The setting of Improper standards
- Use of inferior materials
Question-20: What is the formula for calculating material quantity or usage variance?
Answer: Material quantity or usage variance = {Actual Quantity Used (AQ)* Standard Price (SP) -Standard Quantity Allowed (SQ)*Standard price (SP)}
Question-21: What is direct labor price variance?
Answer: Direct labor price variance is also known as direct labor rate variance. The direct labor rate variance is the difference between the actual hours worked at the actual rate and actual hours worked at the standard rate.
Question-22: What is the reason for labor rate variances?
Answer: The reason for labor rate variances are as follows:
- Changes in basic wages rates
- Improper planning of overtime.
- Overtime work at higher or lower than the standard rate.
- Higher wages paid because of urgent work.
Question-23: What is the formula of direct labor rate variance?
Answer: the formula of direct labor rate variance is as follows:
Labor Rate Variance= {Actual hours worked (AH) *Actual Rate (AR)- Actual hours worked (AH) *Standard Rate (SR)}
Question-24: What is direct labor efficiency variance?
Answer: The difference between the standard cost of the actual number of direct labor hours worked and the standard hours of direct labor for the level of output achieved are the labor efficiency variance. Actually, it is a metric for labor productivity.
Question-25: What is the reason for labor efficiency variances?
Answer: The reason for labor efficiency variances are as follows:
- Strict Supervision
- Use of high or low-quality materials
- Low quality of machinery
- More idle time than normal.
Question-26: What is the formula of direct labor efficiency variance?
Answer: the formula of direct labor efficiency variance is as follows:
Labor efficiency variance= {Actual hours worked (AH) *Standard Rate (SR) – Standard hours allowed (SH)*standard Rate (SR)}
Question-27: What is the factory overhead variance?
Answer: The factory overhead variance is the difference between real overhead incurred and expenditures paid into the process using the standard factory overhead rate.
Question-28: What are the two, three, and four methods of factory overhead variance?
Answer:
The two methods of factory overhead variance are as follows:
- Controllable Variance
- Volume Variance
The three methods of factory overhead variance are as follows:
- Spending Variance
- Idle Capacity Variance
- Efficiency Variance
The four methods of factory overhead variance are as follows:
- Spending Variance
- Idle Capacity Variance
- Variable Efficiency Variance
- Fixed Efficiency Variance
Question-29: What is factory overhead controllable variance?
Answer: The disparity between real expenses incurred and the budget allocation based on standard hours allowed for work performed is known as factory overhead controllable variance.
Question-30: What is the formula of factory overhead controllable variance?
Answer: Factory Overhead Controllable Variance = Actual factory overhead- Budgeted allowance based on standard hours allowed.
Question-31: What is factory overhead volume variance?
Answer: The disparity between the budget allocation and the standard expenditures charged to work in progress is known as factory overhead volume variance.
Question-32: What is the formula of factory overhead volume variance?
Answer: Factory overhead volume variance = Budgeted allowance based on standard hours allowed – {Standard Hour (SH) *Standard Overhead Rate (SR)}
Question-33: What is factory overhead spending variance?
Answer: The difference between real overhead costs incurred and the budgeted allocation based on actual hours worked is known as factory overhead spending variation.
Question-34: What is the formula of factory overhead spending variance?
Answer: Factory overhead spending variance = Actual factory Overhead- {Fixed Budgeted Overhead + Variable budgeted Overhead (AH*VOR)}
Question-35: What is factory overhead idle capacity variance?
Answer: The discrepancy between budget allowances based on actual hours worked and actual hours worked at a standard rate is the factory overhead idle capacity variance.
Question-36: What is the formula of factory overhead idle capacity variance?
Answer: Factory overhead idle capacity variance= Budgeted allowance based on actual hours worked- {Actual hours (AH)* standard overhead rate (SR)}
Question-37: What is factory overhead efficiency variance?
Answer: The disparity between actual hours worked and actual hours worked at the standard rate, as well as standard hours allowed for actual output at the standard rate, is known as factory overhead efficiency variance.
Question-38: What is the formula of Factory overhead efficiency variance?
Answer: Factory Overhead efficiency variance = (Actual hours worked* Standard overhead Rate) – Standard hours allowed for actual production* standard overhead rate)
Question-39: What is material mix variance?
Answer: Material mix variance refers to the difference between the expense of a standard proportion of materials and the real proportion of materials consumed in a production process when two or more materials are used.
Question-40: What is Direct Material Yield Variance?
Answer: The cost difference between the output that should have been generated for a given amount of input and the output that was actually achieved over time is referred to as direct material yield variance.
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