Ch19SM - CHAPTER 19 DISCUSSION QUESTIONS 19-1 Q19-1. When...

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Unformatted text preview: CHAPTER 19 DISCUSSION QUESTIONS 19-1 Q19-1. When standard costs are not incorporated, they may be used for the purposes of pricing, budgeting, and controlling cost; but if they are not used for inventory costing, the advan-tages from the saving of clerical effort in accounting cannot be obtained. Q19-2. With actual cost methods, it is first necessary to select a cost flow methodlifo, fifo, aver-age, etc. It is then necessary to keep detailed records of quantities and prices and to make fairly complex calculations of inventory costs. With a standard costing system, only quanti-ties, not prices, must be taken into account, facilitating both record keeping and calcula-tions. Standard costs also provide cost control. Q19-3. The number of variance accounts is deter-mined by (a) the number and type of vari-ances that are to appear in statements for management use, and (b) the need for easy disposal of variances at the end of the fiscal period, particularly when the variances are not treated uniformly in financial statements and for analyses. Q19-4. (a) The standard cost of products completed and products sold can be determined immediately without waiting for the actual cost to be calculated. With standard costs, monthly statements can be pre-pared more quickly. (b) A firm producing a great many different products finds it practically impossible to determine the actual cost of each prod-uct. The use of standard costs will facili-tate the preparation of income statements by product lines. (c) Keeping finished goods stock records in quantities only will result in clerical sav-ing, since this eliminates the necessity for recording the actual unit cost of each receipt and issue or shipment. Q19-5. The standard costing of inventories depends on (a) the types of standards employed, (b) the degree of success that the company has in keeping overall actual costs in line with standard costs, and (c) the concept held with regard to the most suitable kind of cost. Q19-6. (a) Deferral of variances is supported on the grounds that, if the standards in use are based on normal price, efficiency, and output levels, positive and negative vari-ances can be expected to offset one another in the long run. Because variance account balances at any given point in time are due to recurring seasonal and business cycle fluctuations, and because periodic reporting requirements result in arbitrary cutoff dates, variance account balances at a particular cutoff date are not assignable to operating results of the period then ended. They will cancel out over time and therefore should be carried to the balance sheet. (b) Variances appearing as charges or cred-its on the income statement are regarded as appropriate charges or credits in the period in which they arise. They are con-sidered the result of favorable or unfavor-able departures from normal (standard) conditions and are disclosed separately from cost of goods sold at standard. This provides management with unobscured information for immediate corrective...
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This note was uploaded on 03/15/2012 for the course ACCOUNTING 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.

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Ch19SM - CHAPTER 19 DISCUSSION QUESTIONS 19-1 Q19-1. When...

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