Final_Exam_Review_Solutions - Exam covers Chapters 8, 9...

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AQ * SP SQ*SP Variance Quantity Variance AP-SP) SP*(AQ-SQ) Exam covers Chapters 8, 9 (but not the fixed overhead var) 10, 11 and 12 Chapter 8 – Standard Costs Standard Costing: - What is it? Norms or Benchmarks for measuring performance - Why use it? - Advantages- o Key element of management by exception approach o Standards viewed as reasonable by employees can serve as benchmarks that promote economy and efficiency o Can simplify book keeping and fit perfectly into responsibility accounting systems. - Disadvantages o Emphasizing standards may exclude other important objectives o Standard cost reports may not be timely o Invalid assumptions about the relationship between labor cost and output o Favorable variances may be misinterpreted o Emphasis on negative may impact morale o Continuous improvement may be more important that meeting standards Management by Exception- alerting management of significant deviations from standards Helps managers focus on most important issues Variances: 1) Direct Materials: - Materials Price Variance = AQ (AP – SP) - measures the difference between what is paid for a given quantity and what should have been paid according to the standard NOTE: calculated when purchased. - Materials Quantity Variance = SP (AQ – SQ) - measures the difference between how much was used in production and how much should have been used; calls attention to excessive usage of materials while production is still in process and provides an opportunity to correct the developing problem . NOTE: calculated when used - Note : If amount used was different from amount purchased, you cannot combine into one total variance. Direct Materials price variance should be based on amount purchased, and quantity variance should be based on amount used.
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- Standard Price - is used to compute quantity variance so that production manager
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This homework help was uploaded on 02/24/2009 for the course AEM 323 taught by Professor As during the Spring '09 term at Cornell University (Engineering School).

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Final_Exam_Review_Solutions - Exam covers Chapters 8, 9...

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