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CHAPTER 22 PERFORMANCE EVALUATION USING VARIANCES FROM STANDARD COSTS CLASS DISCUSSION QUESTIONS 1. Standard costs assist management in con- trolling costs and in motivating employees to focus on costs. 2. Management can use standards to assist in achieving control over costs by investigat- ing significant deviations of performance (variances) from standards and taking cor- rective action. 3. Reporting by the “principle of exceptions” is the reporting of only variances (or “excep- tions”) between standard and actual costs to the individual responsible for cost con- trol. 4. There is no set time period for the revision of standards. They should be revised when prices, product design, labor rates, and manufacturing methods change to such an extent that current standards no longer rep- resent a useful measure of performance. 5. Standard costs for direct materials, direct labor, and factory overhead per unit of product are used in budgetary performance evaluation. Product standard costs are multiplied by the planned production volumes. Budget control is achieved by comparing actual results with the standard costs at actual volumes. 6. a. The two variances in direct materials cost are: (1) Price (2) Quantity or usage b. The price variance is the result of a dif- ference between the actual price and the standard price. It may be caused by such factors as a change in market prices or inefficient purchasing proced- ures. The quantity or usage variance results from using more or less materi- als than the standard quantity. It can be caused by such factors as excessive spoilage, carelessness in the production processes, and the use of inferior mater- ials. 7. The offsetting variances might have been caused by the purchase of low-priced, in- ferior materials. The low price of the materi- als would generate a favorable materials price variance, while the inferior quality of the materials would cause abnormal spoil- age and waste, thus generating an unfa- vorable materials quantity variance. 8. a. The two variances in direct labor costs are: (1) Rate (price or wage) (2) Time (usage or efficiency) b. The direct labor cost variance is usually under the control of the production su- pervisor. 9. No. Even though the assembly workers are covered by union contracts, direct labor cost variances still might result. For example, dir- ect labor rate variances could be caused by scheduling overtime to meet production de- mands or by assigning higher-paid workers to jobs normally performed by lower-paid workers. Likewise, direct labor time variances could result during the training of new work- ers. 10. a. The variable factory overhead control- lable variance results from incurring a total amount of variable factory over- head cost greater or less than the amount budgeted for the level of opera- tions achieved. The fixed factory over- head volume variance results from op- erating at a level above or below 100% of normal capacity.
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This note was uploaded on 01/15/2012 for the course ACC 305 taught by Professor Williams during the Spring '11 term at University of Phoenix.

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