Chapter09Solutions-Hansen6e

Chapter09Solutions-Hansen6e - CHAPTER 9 STANDARD COSTING: A...

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Unformatted text preview: CHAPTER 9 STANDARD COSTING: A FUNCTIONAL-BASED CONTROL APPROACH QUESTIONS FOR WRITING AND DISCUSSION 1. Standard costs are essentially budgeted amounts on a per-unit basis. Unit standards serve as inputs in building budgets. 2. The quantity decision is determining how much input should be used per unit of out- put. The pricing decision determines how much should be paid for the quantity of input used. 3. Historical experience is often a poor choice for establishing standards because the his- torical amounts may include more ineffi- ciency than is desired. 4. Ideal standards are perfection standards, representing the best possible outcomes. Currently attainable standards are standards that are challenging but allow for ineffi- ciency. Currently attainable standards are often chosen because many feel they tend to motivate rather than frustrate. 5. By identifying standards and assessing devi- ations from the standards, managers can locate areas where change or corrective be- havior is needed, and efficiencies could be continued. 6. Managers generally tend to have more con- trol over the quantity of an input used, rather than the price paid per unit of input. 7. The materials price variance is often com- puted at the point of purchase rather than is- suance because it provides control informa- tion sooner. If the variance is computed at the point of issuance and a problem is de- tected, this problem could have been ongo- ing for weeks or months (depending on how long the direct materials were in inventory before being used). 8. Disagree. A direct materials usage variance can be caused by factors beyond the control of the production manager, e.g., purchase of a lower quality of direct materials than nor- mal. 9. Disagree. Using higher priced workers to perform lower skilled tasks is an example of an event that will create a direct labor rate variance that is controllable. 10. Inefficient direct labor, machine downtime, bored workers, and poor quality direct ma- terials are possible causes of an unfavor- able direct labor efficiency variance. 11. Part of a variable overhead spending vari- ance can be caused by inefficient use of overhead resources. 12. The volume variance is caused by the actual volume differing from the expected volume used to compute the predetermined stand- ard fixed overhead rate. If the actual volume is different from the expected volume, then the company has either lost or earned a contribution margin. The volume variance signals this outcome. If the variance is large, then the loss or gain is large since the volume variance understates the effect. 13. Control limits indicate how large a variance must be before it is judged to be material and the process is out of control. Current practice sets the control limits subjectively and bases them on past experience, intu- ition, and judgment....
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Chapter09Solutions-Hansen6e - CHAPTER 9 STANDARD COSTING: A...

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