22207 Study Guide - Final Guide: Ideal Standard
Document Summary
Flexible budgets & variance analysis: methods to determine standard cost. Management by exception: taking action only when actual results deviate significantly from planned (look for variances that are bad) Standard cost: a budget for a single unit of a product or service. Two components: quantity & price of materials, labour or overhead. Historical data: industry standards (useful for long-history companies) Take analysis: develop from scratch (talk to industry expert for advice: discuss the use of ideal vs. practical standard. Ideal standard: attained only when near-perfect conditions are present (purchasing through to shipment is at peak efficiency) Can cause employees to give up or cut corners = poor quality. Practical standard: attainable under normal, efficient operating conditions (takes into account machine break downs etc) Static budget: compared to actual performance and then learn from the differences variances (aka management by exceptions: flexible budgeting an alternative to static budgets. Based on standard costs (centre piece of effective variance analysis)
