standard costing: a managerial control tool management accounting: the cornerstone for business...
TRANSCRIPT
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Standard Costing: A Managerial Control
Tool
Management Accounting: The Cornerstone for
Business Decisions
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
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Learning Objectives
1. Explain how unit standards are set and why standard cost systems are adopted.
2. Explain the purpose of a standard cost sheet.
3. Describe the basic concepts underlying variance analysis and explain when variances should be investigated.
4. Compute the materials variances and explain how they are used for control.
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Learning Objectives
5. Compute the labor variances and explain how they are used for control.
6. (Appendix 9A) Prepare journal entries for materials and labor variances.
7. (Appendix 9B) Define kaizen and target costing and explain their relationship to traditional standard costing.
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What three ways are used to develop
standards?
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Define Ideal and Currently Attainable
Standards◙ Ideal Standards
Demands maximum efficiency and is achievable only when everything operates perfectly. There are no breakdowns, slack, or skill failures.
◙ Currently Attainable StandardsAre achievable under efficient
operating conditions, but allowances are made for breakdowns, interruptions, some mistakes and so on.
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Illustrate Types of Standards
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Why have a standard cost system?
◙ It enhances planning and control and improves performance measurement
◙ Allows comparison of actual and budget and analysis of variances (differences)
◙ Broken down into price and efficiency variances
◙ Managers over inputs than prices◙ Standard cost systems are widely
used
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Create a Table of Cost Assignment Approaches
Manufacturing Costs
Direct
materials
Directlabor
Overhead
Actual Costing Actual Actual Actual
Normal Costing Actual Actual Budgeted
Standard Costing Standard Standard Standard
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How to compute standard quantities allowed (SQ & SH)
Assume that 200,000 packages of corn chips are produced during first week of April. The unit quantity standard is 18 ounces of yellow corn per package. The unit quantity standard for machine operators is 0.01 DLH per package produced.
REQUIRED: How much yellow corn and how many operator hours should have been used or the actual output of 200,000 packages?
Calculation:Corn allowed SQ = Unit quantity standard x Actual
output = 18 oz. x 200,000 = 3,600,000 oz.
Operator hours allowedSH = Unit labor standard x Actual
output = 0.01 DLH x 200,000 = 2,000 DLH
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Brief Describe the Total Budget Variance, Price &
Efficiency Variance◙ The actual cost – The planned cost
= (AP x AQ) – (SP x SQ)It is also call the TOTAL VARIANCE
◙ The Price or Rate variance is the(Actual price – Standard Price) x Actual number of units used =(AP – SP) x AQ
◙ The Usage or Efficiency variance is the (Actual Quantity – Standard Quantity) x Standard Price = (AQ – SQ) x SP
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Draw the General Variance Model
Total Variance(1 – 3)
Total Variance(1 – 3)
1. AQ X AP(Actual Quantity
Of input at Actual Price)
1. AQ X AP(Actual Quantity
Of input at Actual Price)
3. SQ X SP(Standard Quantity
Of input at Standard Price)
3. SQ X SP(Standard Quantity
Of input at Standard Price)
2. AQ X SP(Actual Quantity
Of input atStandard Price)
2. AQ X SP(Actual Quantity
Of input atStandard Price)
Price Variance(1 - 2)
Price Variance(1 - 2)
Usage Variance(2 – 3)
Usage Variance(2 – 3)
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How to use control limits to trigger a variance
investigationInformation: Standard costs: $100,000;
allowable deviation +10,000; actual costs for six months:
June $97,500 September $102,500July 105,000 October 107,500August 95,000 November 112,500Required: Plot the actual costs over time
against the upper and lower control lines. Determine when a variance should be investigated.
Calculation: Appears on the following two slides.
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Decisions to Investigate9-2
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Variance Investigation9-2
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How to calculate the total variance for
materialsUnit standards from Exhibit 9-3; the actual
results from the first week of September are below:
Actual production 97,000 bags of corn chipsActual cost of corn1,560,000 oz. at $0.015 =
$23,400Actual cost of labor 720 hours at $8.35 = $6,012REQUIRED: Calculate the total variances for corn
and labor for the first week in September.Calculation: On the following slide
9-3
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How to calculate the total variance for
materials9-3
Actual Costs Budgeted Costs Total Variance
AQ x AP SQ x SP AQ x AP - SQ x SP
$ 23,400 $ 17,460 $ 5,940
Corn: SQ = 18 x 97,000 = 1,746,000 oz.
Corn: $0.01 x 1,746,000 = $17,460
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Units standards from Exhibits 9-2, the actual results from the first week of September:
Actual production 97,000 bags of corn chips
Actual cost of corn 1,560,000 oz. @ $0.015
REQUIRED: Calculate the materials price and usage variances use the 3 pronged (columnar) and formula approaches.
How to calculate the total variance for
materials9-4
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Calculation: A. Formulas (recommended approach
for materials variances because materials purchases may differ from materials used.MPV = (AP – SP)AQ
= ($0.015 - $0.01)1,560,000 = $7,800 U
MUV = (AQ –SQ)SP = (1,560,000 – 1,746,000)$0.01 = $1,860 F
How to calculate the total variance for
materials9-4
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How to calculate the total variance for
materials9-4
Price Variance(1 - 2)
$7,800 U
Price Variance(1 - 2)
$7,800 U
Usage Variance(2 – 3)
$1,860 F
Usage Variance(2 – 3)
$1,860 F
Total Variance(1 – 3)
$5,940 U
Total Variance(1 – 3)
$5,940 U
1. AQ X AP(Actual Quantityat Actual Price)
1,560,000 x $0.015 = $23,400
1. AQ X AP(Actual Quantityat Actual Price)
1,560,000 x $0.015 = $23,400
3. SQ X SP(Standard Quantityat Standard Price)
1,746,000 x$0.01 = $17,460
3. SQ X SP(Standard Quantityat Standard Price)
1,746,000 x$0.01 = $17,460
2. AQ X SP(Actual Quantity
At Standard Price)1,560,000 x
$0.01 = $15,600
2. AQ X SP(Actual Quantity
At Standard Price)1,560,000 x
$0.01 = $15,600
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Discuss Using Materials Variance Information
◙ Responsibility for materials price variance◙ Usually with purchasing agents
◙ Analysis of materials price variance◙ Is it significant or not?
◙ Responsibility for the materials usage variance ◙ Usually production manager is
responsible◙ Analysis of materials usage variance
◙ Who is it assignable to?
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How to calculate the total variance for labor9-5
Unit standards from Exhibit 9-3; the actual results from the first week of September are below:
Actual production 97,000 bags of corn chips
Actual cost of labor 720 hours at $8.35 = $6,012
REQUIRED: Calculate the total variances for labor for the first week in September.
Calculation: On the following slide
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How to calculate the total variance for
materials9-5
Actual Costs Budgeted Costs Total Variance
AQ x AP SQ x SP AQ x AP - SQ x SP
$ 6,012 $ 7,760 $ 1,748
Labor: SQ = .01 x 97,000 = 970 hours
Labor: $8.00 x 970 = $7,760
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Units standards from Exhibits 9-3, the actual results from the first week of September:
Actual production 97,000 bags of corn chips
Actual cost of labor 720 hours @ $8.35REQUIRED: Calculate the labor rate and
efficiency variances use the 3 pronged (columnar) and formula approaches.
9-6
How to calculate the labor variances: formula & columnar approaches
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How to calculate the labor variances: formula & columnar approaches
Calculation: LRV = (AR – SR)AH
= ($8.35 - $8.00)720
= $252 ULEV = (AH –SH)SR
= (720 – 970)$8.00
= $2,000 F
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Price Variance(1 - 2)$252 U
Price Variance(1 - 2)$252 U
Usage Variance(2 – 3)
$2,000 F
Usage Variance(2 – 3)
$2,000 F
Total Variance(1 – 3)
$1,748 F
Total Variance(1 – 3)
$1,748 F
1. AH X AR(Actual Quantityat Actual Price)720 x $8.35 =
$6,012
1. AH X AR(Actual Quantityat Actual Price)720 x $8.35 =
$6,012
3. SH X SR(Standard Quantityat Standard Price)
970 x $8.00 = $7,760
3. SH X SR(Standard Quantityat Standard Price)
970 x $8.00 = $7,760
2. AH X SR(Actual Quantity
At Standard Price)720 x $8.00 =
$5,760
2. AH X SR(Actual Quantity
At Standard Price)720 x $8.00 =
$5,760
How to calculate the labor variances: formula & columnar approaches
9-6
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Discuss Using Labor Variance Information
◙ Responsibility for labor rate variance◙ Determined primarily by external forces◙ Affected by unions, labor contracts and
seniority
◙ Analysis of labor rate variance◙ Responsibility for labor efficiency
variance◙ Managers are responsible for the
productive use of labor
◙ Analysis of labor efficiency variance