AC100_Lecture7-8_COMPLETE LECTURE SLIDES.pdf

Carefully predetermined quantity and price of inputs

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Carefully predetermined quantity and price of inputs used in manufacturing of goods or provision of services . Usually expressed on a per unit basis . Benchmark for measuring performance against actual results. Management by exception Practice of concentrating on areas not operating as anticipated and giving less attention to areas operating as expected. We do it all the time in our lives; think of not needing to check car battery every day.
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Budgeting for control: Feedback control Prepare budget Collect information on actual performance Perform Compare actual performance with budget and take action on deviations Feedback Feedback Feedback
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Accountants and representatives from other functions such as engineers, personnel department managers, and production managers combine efforts to set standards based on experience and expectations . Setting Standard Costs
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Ideal vs Practical standards Ideal standards assume peak efficiency at all times . They are therefore not going to be achieved in most cases . Practical standards allow for normal machine downtime and other work interruptions and that can be attained through reasonable, though highly efficient , efforts by an average worker. They are challenging but achievable targets and are therefore most frequently used
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Ideal vs Practical Standards Most managers feel that ideal standards discourage even the most diligent workers. Variances from ideal standards have little meaning. Variances from Practical standards can signal abnormal conditions and be used for investigations and corrective actions (if controllable)
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Variances May relate to changes in: Volume ( ie quantity) Price Variances which reduce income or increase costs are adverse (or unfavourable) A (or U) Variances which increase revenue or reduce costs are favourable (F) 16
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