BA 1 Chapter 9 - Flexible Budgets, Standard Costs, and Variance Analysis

Standard Hours Allowed for Actual Output

The time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit.

Planning Budget

is prepared before the period begins and is valid for only the planned level of activity

Quantity Variance

is the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input.

Spending Variance

is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity

Price Variance

is the difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased

Revenue Variance

is the difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period

Standard Cost Card

shows the standard quantity (or hours) and standard price (or rate) of the inputs required to produce a unit of a specific product

Quantity Standards

specify how much of an input should be used to make a product or provide a service

Price Standards

specify how much should be paid for each unit of the input

Standard Hours per Unit

defines the amount of direct labor-hours that should be used to produce one unit of finished goods

Standard Quantity per Unit

defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage

Standard Rate per Hour

defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits

Standard Price per Unit

defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials

Standard

is a benchmark for measuring performance

Management by Exception

is a management system that compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further

Flexible Budget

is an estimate of what revenues and costs should have been, given the actual level of activity for the period

Materials Price Variance

measures the difference between an input's actual price and its standard price, multiplied by the actual quantity purchased

Labor Rate Variance

measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period

Labor Efficiency Variance

measures the difference between the actual hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate

Variable Overhead Efficiency Variance

measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate

Materials Quantity Variance

measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials

Variable Overhead Rate Variance

measures the difference between the actual variable overhead cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period

Standard Quantity Allowed for Actual Output

the amount of an input that should have been used to complete the period's actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit

Standard Cost per Unit

the standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input