cima c1 unit 7 2012(2)

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    CIMA C1Fundamentals Of Management Accounting

    Standard Costing & Variance Analysis

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    CIMA C1Fundamentals Of Management Accounting

    Class Slides – Ian Wilson

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    1. E!lain t"e #ene$t of setting a #enc"mar%standard

    . Calculate standard costs for

    Materials'(a#our & Varia#le O)er"eads*. Calculate Variances for

    Materials'(a#our'Varia#le O)er"eads &Sales

    +. ,re!are -econciliation Statements#eteen #udgeted & actual contri#utions

    Learning Aims (CIMA)

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    What do we need to cover/ 0y!es of Standards Standard Cost Cards

    Variances O!erating Statements Causes of Variances Marginal o!erating statements

    Introduction

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    What is a Standard Cost?. A unit'#atc" cost !re!ared in ad)ance

    #ased on e!ected resource usage and

    cost o!erating under !re2determinedconditions. A standard ill include 3standard4 amounts

    of (a#our'Material & 5udgeted ,roduction

    O)er"eads

    Standard Costs

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    Standards are used to measure AC06A( acti)ity & !erformance against t"is !re2determined 5E7C8MA-9 

     0"e di:erence is called a VA-IA7CE.

    Standard Costs

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    See !age ;< of your notes to see "at aStandard Cost Card loo%s li%e

    I li%en a 3standard cost card4 to a 3reci!e4 ora 3menu4 of costs.

    ,ay attention to t"e )arious su#2totals

    Consider t"e net slide also

    Standard Cost Card

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    S0A7=A-= COS0 CA-= – Sam!lelayout

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    There are 4 t!es o" Standard Cost>

    1. Ideal Standard

    . Current Standard

    *. E!ected'Attaina#le Standard+. 5asic Standard.Ma%e sure you %no eac" one in detail..See !age ;*

    T!es o" Standard

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     0"e 3!erfect4 standard. 1

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    Attaina$#e or %&!ected Standard. Standards t"at are set a#o)e current norms 0"e degree of im!ro)ement is 3attaina#le4

    o)er current !erformance. Firm #ut fair C"allenging you "a)e to seat to ac"ie)e Moti)ational for sta: 

    Attaina$#e Standard

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    As t"e name suggests "at is currently#eing ac"ie)ed good or #ad

    6sed as a #enc"mar% to measureim!ro)ement

    May not !ro)ide any ins!iration forim!ro)ement or maintaining "ig" standardsof !erformance

    (imited use #ut good 3#enc"mar%4 to assescurrent !erformance

    Current Standard

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    8istoric ac"ie)ement not u!dated ,ro)ides a reference !oint to measure

    !rogress from

    Often t"e launc" standard if it as good atlaunc" !ro)ides a reminder & focus of t"eoriginal cost #ase & Busti$cation for t"eoriginal decisions ta%en

    'asic Standard

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    Calculate a 3Standard Cost Card4 for t"iseercise

     our notes "a)e a !ro2forma layouta)aila#le to you

    ,age ;1 Com!lete

    %&ercise 1

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    What is a ariance/. 3=i:erence #eteen a !lanned #udgeted or

    standard cost and t"e actual cost incurred. 0"e same com!arison can #e made forre)enues4.

     0"e analysis of t"ese 3di:erences4 is called

    VA-IA7CE A7A(SIS.

    ariance arianceAna#sis

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    T!es o" ariances>

    1. FAVO6-A5(E VA-IA7CES> "en actualresults are #etter t"an e!ected!roducing "ig"er !ro$ts.

    . A=VE-SE VA-IA7CES> "en actual resultsare orse t"an e!ected !roducing loert"an !lanned !ro$ts.

    ariance arianceAna#sis

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    Material

    (a#our

    Varia#le O)er"eads

    Sales

    ,rice 6sage

    -ate E@ciency

    E!enditure E@ciency

    ,rice Volume ,ro$t

    Family 0ree of Variances

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    Formula met"od uses 9ey ,"rases t"at needDuanti$cation>

    A or A8G H Actual uantity of material

    A, or A-G H Actual ,rice !aid for material S, or S-G H Standard ,rice of material !er

    unit of material S or S8G H Standard uantity of material

    !er unit AC06A( O60,60 6A70I0 A A, S S, e)ol)es to> A8  A-  S8  S- for (a#our

    ariances * The +e

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    Materia# ariances

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    La$our ariances

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    aria$#e ,verheadariances

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    SAL%S A-IAC%S

    Actual sales Actual !rice

      H ,rice )ariance

    Actual sales Standard !rice

    Actual sales Standard !ro$t margin

      H Volume Variance

    5udgeted sales Standard !ro$t margin

    Sa#es ariances

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     0"is is a great !ractice Duestion. ou "a)e to calculate A(( !ossi#le

    VA-IA7CES

    )ariances in total are reDuired Consider t"e Duestion layout carefully>

    1.  0o! section A(( your S0A7=A-=S aregi)en "ere>

    . 5ottom !art of Duestion usually "ere t"eAC06A( data is found

    %&am!#e / ,wen

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    ,!erating Statement

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    ,!erating Statement

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    ,ut toget"er an O!erating Statement #asedon MA-JI7A( costing !rinci!les

    %&am!#e 0 ,wen

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    -easons "or Materia# ariances

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    -easons "or La$ourariances

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    %2cienc ariances> As !er (a#our E@ciency reasons> %&!enditure ariances>

    Varia#le o)er"eads ill #e made u! of a)ariety of di:erent costs. Eac" cost element ill "a)e to #e t"e

    su#Bect of analysis #ased on actual &

    !lanned e!enditure to ascertainfa)oura#le'ad)erse reasons for a )ariance

    -easons "or varia$#e ,verheadariances