9706 · 4.2.1
Standard Costing and Variance Analysis flashcards
Revision flashcards for Cambridge 9706 Standard Costing and Variance Analysis (syllabus 4.2.1). Flip, recall, then mark a real past-paper question.
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Standard Cost
A predetermined or target cost for a single unit of output, used as a benchmark for measuring performance.
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Variance
The difference between a standard cost (or revenue) and the actual cost incurred (or revenue received).
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Favourable Variance
A variance that is beneficial to the business. For costs, it means actual cost is less than standard. For revenue, it means actual revenue is more than standard.
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Adverse Variance
A variance that is detrimental to the business. For costs, it means actual cost is more than standard. For revenue, it means actual revenue is less than standard.
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Management by Exception
A management practice where attention is focused on the most significant variances from standard, allowing managers to ignore areas that are performing as expected.
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Material Price Variance Formula
(Standard Price - Actual Price) × Actual Quantity Purchased. It measures the effect of paying more or less than the standard price for materials.
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Labour Efficiency Variance Formula
(Standard Hours for Actual Output - Actual Hours Worked) × Standard Rate. It measures whether more or fewer hours were worked than standard for the production achieved.
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What is an 'Ideal Standard'?
A standard set assuming perfect operating conditions: no waste, no breakdowns, no idle time. It is often seen as demotivating as it is unattainable in practice.