Chapter 16 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 16 STANDARD  COSTS AND  OPERATING  PERFORMANCE MEASURES I. Questions 1. Standard costs are superior to past data for comparison with actual costs because they ask the question “Is present performance better than the past?”. 2. No. Cost control and cost reduction are not the same, but cost reduction does affect the standards which are used as basis for cost control. Cost reduction means finding ways to achieve a given result through improved design, better methods, new layouts and so forth. Cost reduction results in setting new standards. On the other hand, cost control is a process of maintaining performance at or as new existing standards as is possible. 3. Managerial judgment is the basis for deciding whether a given variance is large enough to warrant investigation. For some items, a small amount of variance may spark scrutiny. For some items, 5%, 10% or 25% variances from standard may call for follow-up. Management may also derive the standard deviation based on past cost data. 4. The techniques for overhead control differ because 1) The size of individual overhead costs usually does not justify elaborate individual control systems; 2) The behavior of individual overhead item is either impossible or difficult to trace to specific lots or operations; and 3) Various overhead items are the responsibility of different people. 5. In the year-to-year planning of fixed costs, managers must consider: 1) the projected maximum and minimum levels of activity, 2) prices of cost factors, and 3) changes in facilities and organization. 6. Four criteria for selecting a volume base are: 16-1
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Chapter 16 Standard Costs and Operating Performance Measures 1) Cause of cost variability. 2) Adequacy of control over the base. 3) Independence of activity unit. 4) Ease of understanding. 7. Non-volume factors which cause costs to vary are: 1) Changes in plant and equipment. 2) Changes in products made, materials used, or methods of manufacturing. 3) Changes in prices paid for cost factors. 4) Changes in managerial policy toward costs. 5) Lag between cost incurrence and measurement of volume. 8. A budget is usually expressed in terms of total pesos, whereas a standard is expressed on a per unit basis. A standard might be viewed as the budgeted cost for one unit. 9. Under management by exception, managers focus their attention on operating results that deviate from expectations. It is assumed that results that meet expectations do not require investigation. 10. Separating an overall variance into a price variance and a quantity variance provides more information. Moreover, prices and quantities are usually the responsibilities of different managers. 11. The materials price variance is usually the responsibility of the
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Chapter 16 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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