Audit practice.docx

Audit practice.docx

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Auditpractice

Chapter16

StandardCosting,VarianceAnalysisand

KaizenCosting

ANSWERStoReviewQuestions

16.1Responsibilityreportingsystemsidentifyvariancesorexceptionstobudgetplansandrelatethoseexceptionstothemanagerresponsibleforthem.Thereportedvariances（andtheanalysisthereof）furtherisolatesandidentifiesthecauseofexceptionstobudgetplans.

16.2Standardmaterialpricesincludethepurchasepriceofthematerialandanytransportationcostsincurredtoobtainthematerial.Thestandardquantityofmaterialistheamountrequiredtobeincludedinthefinishedproductplusanallowancefornormalwasteexpectedintheproductionprocess.

16.3Anunfavorabledirect-materialpricevariancemeansthatahigherpricewaspaidforthematerialthanwasexpectedwhenthestandardwasset.Afavorablevariancehastheoppositeinterpretation.

16.4Themanagerinthebestpositiontoinfluencethedirect-materialpricevarianceisthepurchasingmanager.

16.5Anunfavorabledirect-materialquantityvariancemeansthatalargeramountofmaterialwasusedintheproductionprocessthanshouldhavebeenusedinaccordancewiththestandard.Afavorablevariancehastheoppositeinterpretation.

16.6Themanagerinthebestpositiontoinfluencethedirect-materialquantityvarianceusuallyistheproductionmanager.

16.7Severalfactorsthatmanagersoftenconsiderwhendeterminingthesignificanceofavarianceareasfollows:

sizeofvariance,extenttowhichthevariancesarerecurring,trendsinthevariances,controllabilityofthevariances,andtheperceivedcostsandbenefitsofinvestigatingthevariances.

16.8Anunfavorabledirect-laborratevariancemeansthatahigherlaborratewaspaidthanwasanticipatedwhenthestandardwasset.Onepossiblecauseisthatlaborrateraisesgrantedwereabovethoseanticipatedinsettingthestandards.Anotherpossiblecauseisthatmorehighlyskilledworkerswereusedtoperformtasksthanwererequiredorwereanticipatedatthetimethestandardswereset.Afavorablevariancehastheoppositeinterpretation.

16.9Insomecases,themanagerinthebestpositiontoinfluencethedirect-laborratevarianceistheproductionmanager.Inothercases,thepersonnelmanagerorunionnegotiatorwouldhavegreaterinfluence.

16.10Theinterpretationofanunfavorabledirect-laborefficiencyvarianceisthatmorelaborhourswereusedtoaccomplishagiventaskthanwererequiredinaccordancewiththestandards.Afavorablevariancehastheoppositeinterpretation.

16.11Themanagerinthebestpositiontoinfluencethedirect-laborefficiencyvarianceusuallyistheproductionmanager.

16.12Underastandard-costingsystem,standardcostsareusedforproduct-costingpurposesaswellasforcontrolpurposes.ThecostsenteredintoWork-in-ProcessInventoryarestandardcosts.Fromthatpointforward,standardcostsflowthroughallthemanufacturingaccounts.Whengoodsarefinished,thestandardcostofthefinishedgoodsisremovedfromtheWork-in-ProcessInventoryaccountandtransferredtotheFinished-GoodsInventoryaccount.Whengoodsaresold,thestandardcostofthegoodssoldistransferredfromtheFinished-GoodsInventoryaccounttoCostofGoodsSold.

16.13Kaizencostingistheprocessofcostreductionduringthemanufacturingphaseofanexistingproduct.TheJapanesewordkaizenreferstocontinualandgradualimprovementthroughsmallbettermentactivities,ratherthanlargeorradicalimprovementmadethroughinnovationorlargeinvestmentsintechnology.

16.14Examplesinclude:

∙Steelmillswhichcanprocessbothnewsteelandrecycledscrap

∙Oilrefinerieswhichcanprocessdifferentgradesofcrudeoil

∙Distilleriesproducingblendedwhiskeys

∙Chemicalcompanies

ANSWERStoCRITICALANALYSIS

16.15Aperfection（orideal）standardisthecostexpectedunderperfectoridealoperatingconditions.Apractical（orattainable）standardisthecostexpectedundernormaloperatingconditions.Manybehavioralscientistsquestiontheeffectivenessofperfectionstandards.Theyfeelthatemployeesaremorelikelytoperformwellwhentheystrivetoachieveanattainablestandardthanwhentheystrive,oftenunsuccessfully,toachieveaperfectionstandard.

16.16Variancesrepresentdifferencesbetweenplansandactualoutcomes.Capturingthesevariancescanprovideusefulinformationregardlessofwhetherinventoriesexist.Knowledgeaboutdifferencesbetweenplansandactualoutcomescanhelpmanagersimproveplanningortakestepstoimproveoperations.

16.17Theactionthatmanagementcantakeinresponsetopricevariancesisprobablyquitedifferentthantheactionthatcanbetakeninresponsetoefficiencyvariances.Thelatterisgenerallymoresubjecttomanagementcontrol.Also,differentdepartmentsmayberesponsibleforeachvariance.Forexample,purchasingmayberespo