3.2 Standard Costing and Variance Analysis

• What is the primary purpose of standard costing?

  Estimate costs
• Standard costing involves setting a benchmark
• Key benefits of standard costing in the correct order:

  1️⃣ Providing a cost control baseline

  2️⃣ Assisting in budget preparation and decision making

  3️⃣ Facilitating performance evaluation
• A standard cost of $10 and an actual cost of $12 indicates a $2 unfavorable variance.
• Match the standard cost component with its elements:

  Direct Materials ↔️ Purchase price

  Direct Labor ↔️ Wages per hour

  Variable Overhead ↔️ Electricity costs

  Fixed Overhead ↔️ Rent
• What do variances measure in standard costing?

  Difference between costs
• The formula for Material Price Variance is MPV
• A positive variance is considered favorable.
• Key benefits of standard costing in the correct order:

  1️⃣ Providing a cost control baseline

  2️⃣ Assisting in budget preparation and decision making

  3️⃣ Facilitating performance evaluation
• What are the four key components of standard costs?

  Direct materials, labor, overhead
• Match the standard cost component with its elements:

  Direct Materials ↔️ Freight-in costs

  Direct Labor ↔️ Employee benefits

  Variable Overhead ↔️ Machine maintenance

  Fixed Overhead ↔️ Insurance
• Variances help companies monitor efficiency and control expenses.
• What is the purpose of analyzing variances in standard costing?

  Improve cost management
• A favorable variance occurs when actual costs are lower
• Match the variance type with its description:

  Favorable ↔️ Actual costs are lower than standard costs

  Unfavorable ↔️ Actual costs are higher than standard costs
• What are two key benefits of standard costing systems?

  Cost control and budgeting
• Static standards in standard costing systems can become outdated
• Regular updates are necessary to maintain the effectiveness of standard costing systems.