Week 6: Standards, Costs, and Variances
Let’s start the week with a discussion on standards costs.
What role do standard costs play in controlling the operations of a business? How are standard costs developed for direct materials, direct labor, and manufacturing overhead? Are there ever costs that we can’t develop standards for related to manufacturing the goods?
Additional Questions for Week #6:
Variance Analysis
- Discuss how favorable variances in one area can lead to unfavorable variances in another area.
- What is the difference between a favorable and an unfavorable variance?
- A company’s actual material usage was less than the standard allowed. Is this a favorable or unfavorable material usage variance? Why?
- Explain how a change in the price of raw materials could lead to an unfavorable materials price variance.
- What are the possible causes of an unfavorable labor rate variance?
- How can variance analysis be used to identify areas for cost reduction in a manufacturing process?
Standard Costing
- What is a standard cost, and how is it determined?
- Why might a company choose to use standard costing?
- What are the potential limitations of using standard costing?
- How do standard costs help in setting selling prices?
- Explain the role of standard costing in performance evaluation.
Flexible Budgets
- What is a flexible budget, and how does it differ from a static budget?
- How does a flexible budget accommodate changes in activity levels?