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Activity 4 - SCM

Budgeted costs are based on forecasts and predict future expenses, while standard costs are predetermined and used as a reference point to compare actual costs. Standard costs focus on production levels and guide management performance, while budgeted costs emphasize spending limits for all departments. Standard costing is used for cost control, pricing decisions, inventory costing, motivation, cost awareness, budget and report preparation, and exception management. Standard variance analysis compares actual and standard costs to measure performance. A variance occurs when actual and standard costs differ, with an unfavorable variance when actual costs are greater than standard and a favorable variance when standard costs exceed actual costs.

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23 views2 pages

Activity 4 - SCM

Budgeted costs are based on forecasts and predict future expenses, while standard costs are predetermined and used as a reference point to compare actual costs. Standard costs focus on production levels and guide management performance, while budgeted costs emphasize spending limits for all departments. Standard costing is used for cost control, pricing decisions, inventory costing, motivation, cost awareness, budget and report preparation, and exception management. Standard variance analysis compares actual and standard costs to measure performance. A variance occurs when actual and standard costs differ, with an unfavorable variance when actual costs are greater than standard and a favorable variance when standard costs exceed actual costs.

Uploaded by

John Nathan Kingly
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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NAME: Jonathan P.

Iraham SECTION: BSA-2 Non ABM DATE: 01/13/2021


SUBJECT: Strategic Cost Management
ACTIVITY 4

Q. 1 Explain the difference between budgeted cost and standard cost.


Answer:
Standard costs are the types of cost which are already determined or identified by the
management in order to be used as a point of reference to compare with actual costs incurred.
These are costs that focus on the level of activity or production which guides management as to
what results should be based on their level of performance. Further, these are intended only for
the manufacturing department of the firm and if there proves to be a material difference between
actual and standard costs, management is required to make corrective measures.
Meanwhile, budgeted costs are the types of cost which is based on forecasts of sales and
revenue within the company. Basically, it is a budgeted expense in which the company predicts
or expects to incur in the future based on their performance or sales. These costs give emphasis
to limits or a threshold to which cost should not exceed and difference in data will only serve as
an indication of company’s performance whether good or bad. Unlike standard cost, budgeted
costs are intended for all departments within the firm..

Q. 2 Enumerate the uses of standard costing.


Answer:
According to the given module, the various uses of standard costing are the following:
1. Cost control
2. Pricing decisions
3. Costing of inventories
4. Motivation and performance appraisal
5. Cost awareness and cost reduction
6. Preparation of budgets
7. Preparation of cost report
8. Management by exception
Q. 3 Discuss the concept of Standard Variance Analysis.
Answer:
Standard Variance Analysis is a method which is used by management in order to help
them determine and measure the extent of their performance. It is a form of standard costing
system in which they are able to compare actual results with standards and help them control
costs in the production process. In its basic equation, the difference between the actual cost and
the standard cost is the variance. If actual costs are greater than standard costs, it can be implied
that the company is performing poorly because there is actually more expenses incurred than
what was predicted. Therfore, it is unfavorable. On the other hand, if standard costs exceeds
actual costs, actual expenses are lesser compared to what was predicted and is therefore
favorable for the company.

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