Disadvantages of standard costing
- Standard costing system may suffer from certain disadvantages.
1. The system may not be appropriate toot he business.
2. Ineffective for control purposes if not understood properly by the managers and other staff members. Therefore, the staff may not be capable of operating the system.
3. A business may not be able to keep standards up-to-date. In other words, a business may not revise standards to keep pace with the frequent changes in manufacturing conditions. Therefore, in rapidly changing situations, the standards become out of date and lose their effect.
4. Inaccurate and unreliable standards cause misleading results and thus may not enjoy the confidence of the users of the system.
5. Operation of the standard costing system is a costly affair and small firms cannot afford it. To install and keep up-to date the system of standard costing (Revision of Standard) may be very expensive and time consuming.
6. Standard costing is expensive and unsuitable in job order industries manufacturing non-standardized products.
marto answered the question on February 26, 2019 at 07:18
- Viwandani company limited manufactures a single product branded Exe
The following data relate to actual output costs and variances for the month of March 2010.(Solved)
Viwandani company limited manufactures a single product branded Exe
The following data relate to actual output costs and variances for the month of March 2010.
Date posted: February 26, 2019. Answers (1)
- Briefly explain four applications of standard costing.(Solved)
Briefly explain four applications of standard costing.
Date posted: February 26, 2019. Answers (1)
- Explain four factors to consider in deciding whether to investigate variances revealed by a standard
costing system.(Solved)
Explain four factors to consider in deciding whether to investigate variances revealed by a standard
costing system.
Date posted: February 26, 2019. Answers (1)
- XYZ Ltd. produces a product branded Zec, The company operates a standard costing system.
The budgeted product information for the month of October 2011 was as...(Solved)
XYZ Ltd. produces a product branded Zec, The company operates a standard costing system.
The budgeted product information for the month of October 2011 was as follows:
Required:
Prepare an operating statement which reconciles budgeted and actual profits using variances
approach.
Date posted: February 26, 2019. Answers (1)
- Benefits that would accrue to an organisation that operates a standard costing system.
(Solved)
Benefits that would accrue to an organisation that operates a standard costing system.
Date posted: February 26, 2019. Answers (1)
- ABC Ltd produces a single product branded Zed. The standard cost per unit for the month of
April 2012 was as follows:(Solved)
ABC Ltd produces a single product branded Zed. The standard cost per unit for the month of
April 2012 was as follows
Budgeted production was 2,000 units while the actual production was 1,800 units.
Required
i) Material price variance and material usage variance.
ii) Labour rate variance and efficiency variance.
iii) Fixed overhead volume variance and capacity variance.
iv) Variable overhead expenditure variance and efficiency variance.
Date posted: February 26, 2019. Answers (1)
- Explain why investigations of variances are important in a standard costing system.(Solved)
Explain why investigations of variances are important in a standard costing system.
Date posted: February 26, 2019. Answers (1)
- Describe the following types of standards in the context of standard costing.
i) Ideal standards
ii) Attainable standards.(Solved)
Describe the following types of standards in the context of standard costing.
i) Ideal standards
ii) Attainable standards.
Date posted: February 26, 2019. Answers (1)
- Eval Ltd. manufactures a product branded SCQ that uses three different ingredients namely;
Exe, Wye. and Zed. The standard prime cost is as follows:(Solved)
Eval Ltd. manufactures a product branded SCQ that uses three different ingredients namely;
Exe, Wye. and Zed. The standard prime cost is as follows:
Additional information:
1. During the month of September 2013, Eval Ltd. manufactured and sold 6,000 units.
2. The actual material costs were as follows:
3. During the month of September 2013, the company worked for 17,500 direct labour hours of
which 2,500 hours were paid at the rate of Sh.12 per hour. The rest were paid at a standard rate.
Required:
i) Materials price variance.
ii) Materials usage variance.
iii) Labour rate variance.
iv) Labour efficiency variance.
Date posted: February 26, 2019. Answers (1)
- Varb Ltd. manufactures a product branded QM
The standard cost per unit of QM is given below:(Solved)
Varb Ltd. manufactures a product branded QM
The standard cost per unit of QM is given below:
Additional information:
1. For the month of April 2014, the budgeted production of product QM was 24,000 units.
2. Fixed overheads are absorbed on a labour hour basis.
3. The actual results for the month of April 2014 were as follows:
Required:
i) Materials price variance.
ii) Materials usage variance.
iii) Labour rate variance.
iv) Labour efficiency variance.
v) Fixed overheads expenditure variance.
vi) Fixed overheads volume variance.
Date posted: February 26, 2019. Answers (1)
- Explain three differences between standard costs and estimated costs.(Solved)
Explain three differences between standard costs and estimated costs.
Date posted: February 26, 2019. Answers (1)
- To manufacture a standard product, 10 units of material are required at a standard price of Sh.80
per unit. The actual production for the period was...(Solved)
To manufacture a standard product, 10 units of material are required at a standard price of Sh.80
per unit. The actual production for the period was 10,000 units. From the cost records it was
found that 105,000 units of materials were actually consumed at a price of Sh. 75 per unit.
Required;-
i) Calculate the material cost variance.
ii) Reconcile material cost variance with material price variance and material usage variance.
Date posted: February 26, 2019. Answers (1)
- Kuuda Limited manufactures one standard product. Currently, it is operating at a normal level of
activity of 70% with an output of 6,300 units, although the...(Solved)
Kuuda Limited manufactures one standard product. Currently, it is operating at a normal level of
activity of 70% with an output of 6,300 units, although the sales director believes that a realistic
forecast for the next budget period would be at a level of activity of 50%.
Required:
(i). Prepare a flexible budget based on a 50% level of activity.
(ii). State three problems which may arise from such a change in the level of activity.
Date posted: February 26, 2019. Answers (1)
- Identify the limitations of using budgeting systems to regulate business activities.(Solved)
Identify the limitations of using budgeting systems to regulate business activities.
Date posted: February 26, 2019. Answers (1)
- State the objectives of budgetary planning and control systems.(Solved)
State the objectives of budgetary planning and control systems.
Date posted: February 26, 2019. Answers (1)
- Mavuno Ltd. is a small scale company that specializes in the production of farm tools.
The company uses budgets for planning and controlling its activities. Currently...(Solved)
Mavuno Ltd. is a small scale company that specializes in the production of farm tools.
The company uses budgets for planning and controlling its activities. Currently the management are
preparing budgets for the three months ending 31 March 2006.
The projected balance sheet as at 31 December 2005 is shown below:
Additional information:
1. The company sells the farm tools at a mark up of 25 %.
2. Purchase of materials stocks is on credit and it is paid for in the month of receipt by the
company
3. Employees are paid wages at the end of every week with the earnings of the last week of the
month being settled in the following month (Assume one month has 4 weeks).
4. Sales commission is paid on month in arrears at the rate of 1% of sales.
5. Overheads include a monthly depreciation charge of Sh. 25,000.
6. 25% of the sales are on cash basis. The other 75% is receivable two months after the sale.
7. The company will receive a loan of Sh.2, 500,000 in the month of March 2006 from Wakulima
Bank.
8. Old equipment will be sold for sh.250, 000 in February 2006 and new equipment will be
purchased at Sh.1, 200,000 to replace the old equipment sold. The new equipment will be paid
for in month of March 2006.
9. Rent is paid for quarterly in advance in the months of January, April, July and October
Required:
(a) Cash budget for the three months ending 31 March 2006.
(b) Budgeted trading profit and loss account for the three months ending 31 March 2006
(c) Budgeted balance sheet as at 31 March 2006.
Date posted: February 26, 2019. Answers (1)
- Kikwetu Enterprises is a firm operating in the textile industry.
The budgeted sales for the fabric “S” for the month of August 2006 are 20,000 units...(Solved)
Kikwetu Enterprises is a firm operating in the textile industry.
The budgeted sales for the fabric “S” for the month of August 2006 are 20,000 units at a selling price
of Sh. 4,000 per unit.
Additional information:
1. For the production of one unit of output of fabric “S”, the following two components of inputs are
used:
4. Factory overheads absorbed into unit cost on the basis of direct labour hours. The budgeted
factory overheads for the month are given as Sh.3840, 000.
5. The administration, selling and distribution overheads for given month are budgeted at
Sh.11,000,000.
6. The company plans a reduction on 50% in quantity of finished stock at the end of the month and
decrease of 25% in the quantity of each input component.
Required:
(a) For the month of August 2006
(i). Production quantity budget.
(ii). Material usage budget
(iii). Material purchase budget
(iv). Direct labour cost budget.
(b) A budgeted profit and loss account
Date posted: February 26, 2019. Answers (1)
- Mashauri limited operates a budget system. The following is the company's profit forecast for a
six month period ending 31 August 2007:(Solved)
Mashauri limited operates a budget system. The following is the company's profit forecast for a
six month period ending 31 August 2007:
Additional information:
1. The cash book showed an overdrawn balance of sh. 43,000,000 on 1 June 2007
2. Plant installation costs amounting to sh. 60,000,000 are due to in August 2007 while a loan
repayment from a debtor of sh. 16,000,000 falls due in June 2007
3. Factory expenses are paid one month after they are incurred by the company
4. One eight of the wages amount is paid months in arrears
5. Three months rent is payable in advance on the first day of each quarter
6. Payment for raw materials is made two months after delivery
7. Two months credit is taken on advertising expense.
8. Administration expense are payable in the month in which they arise
9. A dividend and tax thereon will be paid in July 2007 amounting to sh. 50,000
10. Debtors are allowed three months credit
11. Sales commission is paid one month in arrears.
Required:
i) Cash budget for the period between 1 June 2007 and 31 August 2007
ii) State the control measures that the management should put in place in order to improve the
cash position of the company.
Date posted: February 26, 2019. Answers (1)
- Distinguish between the following sets of terms:-
i) Budgetary slack an principal budget factor
ii) Pudding the budget and rolling budget(Solved)
Distinguish between the following sets of terms:-
i) Budgetary slack an principal budget factor
ii) Pudding the budget and rolling budget
Date posted: February 26, 2019. Answers (1)
- Dream Wheels limited is in the process of reviewing its master budget for the six months ending 31
December 2009
The statement of financial position for the...(Solved)
Dream Wheels limited is in the process of reviewing its master budget for the six months ending 31
December 2009
The statement of financial position for the year ended 30 June 2009 is as follows:-
Additional information
1. The selling price from May 2009 to September 2009 was sh. 6,000 per unit. The price
increased to sh. 8,000 per unit from October 2009
2. 50% of sales are paid in cash and 50% are sold on credit
3. Credit sales are paid two months after the month of sale
4. Purchase are paid two months after the month of purchase
5. Wages and salaries are paid 75% in the month in which they are incurred and 25% in the
following month
6. Overheads are paid one month in arrears
7. Fixed assets worth shs. 30 million were purchased during the month of October 2009. The
amount is to be paid in three equal monthly installments commencing January every year.
8. Depreciation on fixed assets is at the rate of 10% per annum on a straight line basis. A full
year's depreciation is provided for fixed assets owned as at 31 December every year.
9. Shares worth sh. 20 million were issued through the stock exchange during the month of
September 2009
10. The value of closing stock as at 1 July 2009 was equal to the previous purchases
11. Dividends worth sh. 10 million relating to year 2009 will be paid to shareholders during the
month of December 2009
Required:
Revised cash budget for six months period ending 31 December 2009
Date posted: February 26, 2019. Answers (1)