Bài giảng Financial & Managerial Accounting - Chapter 23: Standard Cost Systems

Standard Cost SystemsChapter23Benchmarks formeasuring performance.The expected levelof performance.Based on carefullypredetermined amounts.Used for planning labor, materialand overhead requirements.Standard Costs are Standard Cost SystemsDirectMaterialType of Product CostAmountDirectLaborManufacturingOverheadStandard costA standard cost varianceis the amount by whichan actual cost differs fromthe standard cost.Standard Cost SystemsType of Product CostAmountThis variance is unfavorable because the actual cost exceeds the standard cost. This variance isfavorable becausethe actual costis less than thestandard cost. Standard costStandard Cost SystemsDirectLaborManufacturingOverheadDirectMaterialPrepare standard cost performance reportConduct next period’s operationsAnalyze variancesIdentifyquestionsReceive explanationsTakecorrective actionsBeginVariance AnalysisShould we usenormal standardsor ideal standards?EngineerManagerialAccountantEstablishing and RevisingStandard CostsNormal standards should beset at levels that are currentlyattainable with reasonable andefficient effort.ProductionmanagerI agree. Ideal standards, that are based on perfection, areunattainable and therefore discouraging to most employees.HumanResourcesManagerEstablishing and RevisingStandard CostsAre standards the same as budgets? A standard is the expected cost for one unit.A budget is the expected cost for all units.Use of Standard Costs in Developing BudgetsUse product design specifications.Use competitivebids for the qualityand quantity desired.QuantityStandardsDirect Material Standards PriceStandards The standard material cost for one unit of product is: standard quantity standard price for of material one unit of material required for one unit of product ×Direct Material Standards TimeStandardsRateStandardsDirect Labor Standards Use time and motion studies foreach labor operation.Use wage surveys andlabor contracts. The standard labor cost for one unit of product is: standard number standard wage rate of labor hours for one hour for one unit of product ×Setting Direct Labor StandardsActivityStandardsRateStandardsManufacturing Overhead Standards The activity is the cost driver used to calculate the overhead rate.The rate is basedon an estimate of totaloverhead at the normallevel of activity.×The standard overhead cost for one unit of product is: standard variable standard number overhead rate for of activity units  one unit of for one unit of activity product×Manufacturing Overhead Standards Standard Cost VariancesQuantity VariancePrice VarianceA General Model forVariance Analysis The difference betweenthe actual price and thestandard priceThe difference betweenthe actual quantity andthe standard quantityStandard price is the amount that should have been paid for the resources acquired.Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceA General Model forVariance Analysis Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceA General Model forVariance Analysis Standard quantity is the quantity that should have been used for the actual good output. Let’s use the concepts of the general model to calculate standard cost variances, starting withdirect material.Standard Costs and Variance Analysis: An IllustrationHanson Inc. has the following material standard to manufacture one Zippy:1.5 pounds per Zippy at $4.00 per pound Records last week show 1,700 pounds of material were purchased on May 10 at a total cost of $6,630. The material was used to make 1,000 Zippies that were completed on May 15.Standard Costs and Variance Analysis: An IllustrationZippyActual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity Variance Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead  spending variance efficiency variance AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Material Price and Quantity Variances The actual price per pound paid forthe material was a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.Material VariancesQuestion 1ZippyThe actual price per pound paid forthe material was a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.AP = $6,630 ÷ 1,700 lbs.AP = $3.90 per lb. Material VariancesQuestion 1ZippyMaterial VariancesQuestion 2Hanson’s material price variance (MPV)for the week was a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.ZippyHanson’s material price variance (MPV)for the week was a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 favorableMaterial VariancesQuestion 2Zippy The standard quantity of material thatshould have been used to produce1,000 Zippies is a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds.Material VariancesQuestion 3Zippy The standard quantity of material thatshould have been used to produce1,000 Zippies is a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds. SQ = 1,000 units × 1.5 lbs per unit SQ = 1,500 lbsMaterial VariancesQuestion 3ZippyHanson’s material quantity variance (MQV) for the week was a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.Material VariancesQuestion 4ZippyHanson’s material quantity variance (MQV) for the week was a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorableMaterial VariancesQuestion 4ZippyActual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard Price 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. $6,630 $ 6,800 $6,000 Price variance$170 favorableQuantity variance$800 unfavorableMaterial VariancesSummaryZippyI am not responsible for this unfavorable materialquantity variance. You purchased cheapmaterial, so my peoplehad to use more of it.Responsibility forMaterial VariancesYou used too much material because of poorly trained workers and poorly maintained equipment.Also, your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. Let’s turn our attention to labor variances.Labor Rate and Efficiency Variances Hanson Inc. has the following labor standard to manufacture one Zippy:1.5 standard hours per Zippy at $8.00 per hour Payroll records last week show 1,450 hours were worked at a total labor cost of $11,890 to make 1,000 Zippies that were completed on May 15.Standard Costs and Variance Analysis: An IllustrationZippy Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateRate VarianceEfficiency Variance Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead  spending variance efficiency variance AH(AR - SR) SR(AH - SH) AH = Actual Hours SR = Standard Rate AR = Actual Rate SH = Standard Hours Labor Rate and Efficiency VariancesHanson’s actual rate (AR) for laborfor the week was a. $8.20 per hour. b. $8.00 per hour. c. $7.80 per hour. d. $7.60 per hour.Labor VariancesQuestion 1ZippyHanson’s actual rate (AR) for laborfor the week was a. $8.20 per hour. b. $8.00 per hour. c. $7.80 per hour. d. $7.60 per hour. AR = $11,890 ÷ 1,450 hours AR = $8.20 per hourLabor VariancesQuestion 1ZippyHanson’s labor rate variance (LRV) forthe week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable.Labor VariancesQuestion 2ZippyHanson’s labor rate variance (LRV) forthe week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable. LRV = AH(AR - SR) LRV = 1,450 hrs($8.20 - $8.00) LRV = $290 unfavorableLabor VariancesQuestion 2Zippy The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours.Labor VariancesQuestion 3Zippy The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours. SH = 1,000 units × 1.5 hours per unit SH = 1,500 hoursLabor VariancesQuestion 3ZippyHanson’s labor efficiency variance (LEV) for the week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable.Labor VariancesQuestion 4ZippyHanson’s labor efficiency variance (LEV) for the week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable. LEV = SR(AH - SH) LEV = $8.00(1,450 hrs - 1,500 hrs) LEV = $400 favorableLabor VariancesQuestion 4ZippyRate variance$290 unfavorableEfficiency variance$400 favorable Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate 1,450 hours 1,450 hours 1,500 hours × × × $8.20 per hour $8.00 per hour $8.00 per hour $11,890 $11,600 $12,000 Labor VariancesSummaryZippyHigh skill,high rateLow skill,low rateUsing highly paid skilled workers toperform unskilled tasks results in anunfavorable rate variance.Production managers who make work assignmentsare generally responsible for rate variances.Labor Rate VarianceUnfavorableEfficiencyVariancePoorlytrainedworkersPoorsupervisionof workersPoorqualitymaterialsPoorlymaintainedequipmentLabor Efficiency VarianceI am not responsible for the unfavorable laborefficiency variance! You purchased cheapmaterial, so it took moretime to process it. You used too much time because of poorly trained workers and poor supervision.Responsibility for Labor VariancesMaybe I can attribute the laborand material variances to personnel for hiring the wrong peopleand training them poorly. Responsibility for Labor Variances Let’s turn our attention to manufacturing overheadManufacturing Overhead Variances Recall that overhead costs are applied to products and services using a predetermined overhead rate (POHR):POHR =Applied Overhead = POHR × Standard ActivityEstimated total overhead costsEstimated activity Manufacturing Overhead VariancesOverhead RateContains variableoverhead thatincreases asactivity increases.Contains fixedoverhead thatremains constant asactivity changes.Function of activity levelchosen to determine rate.Manufacturing Overhead VariancesHanson, Inc. has the following manufacturing overhead at three different levels of activity:Hanson applies overhead based on machine hour activity.Manufacturing OverheadVariances ExampleZippyOverhead Variances Question 1Zippy The total overhead rate for an estimated activity of 3,000 machine hours (MH) is: a. $5.00 per machine hour. b. $4.00 per machine hour. c. $3.00 per machine hour. d. $2.00 per machine hour. The total overhead rate for an estimated activity of 3,000 machine hours (MH) is: a. $5.00 per machine hour. b. $4.00 per machine hour. c. $3.00 per machine hour. d. $2.00 per machine hour.$15,000 ÷ 3,000 machine hoursOverhead Variances Question 1Zippy The total overhead rate for an estimated activity of 3,000 machine hours (MH) is: a. $5.00 per machine hour. b. $4.00 per machine hour. c. $3.00 per machine hour. d. $2.00 per machine hour.$15,000 ÷ 3,000 machine hoursThe $5.00 overhead rate containsa variable portion:$6,000 ÷ 3,000 MH = $2.00 per MHand a fixed portion:$9,000 ÷ 3,000 MH = $3.00 per MHOverhead Variances Question 1Zippy Budgeted Applied Actual Overhead at Overhead at  Overhead Actual Activity Standard Hours Spending VarianceVolumeVarianceManufacturing Overhead Variances Budgeted Applied Actual Overhead at Overhead at  Overhead Actual Activity Standard Hours Spending VarianceVolumeVarianceManufacturing Overhead VariancesShows how economicallyoverhead services werepurchased and howefficiently overheadservices were used.Contains both fixedand variable costs.A controllable variance. Budgeted Applied Actual Overhead at Overhead at  Overhead Actual Activity Standard Hours Spending VarianceVolumeVarianceManufacturing Overhead VariancesCaused by producing ata level other than thatused for computing thestandard overhead rate. Contains only fixed costs. Hanson’s actual production for theperiod was 1,600 Zippies resulting in 3,200 standard machine hours. Actual total overhead cost for the period was $15,450.Compute the overhead spending and volume variances.Manufacturing OverheadVariances ExampleZippy Budgeted Applied Actual Overhead at Overhead at  Overhead Standard Hours Standard Hours $15,450 $9,000 fixed 3,200 hrs. + × $6,400 variable $5.00 per hr. $2.00 per hr. × 3,200 hrs.Manufacturing OverheadVariances ExampleZippy Budgeted Applied Actual Overhead at Overhead at  Overhead Standard Hours Standard Hours Spending variance$50 unfavorableVolume variance$600 favorable $15,450 $9,000 fixed 3,200 hrs. + × $6,400 variable $5.00 per hr. $15,450 $15,400 $16,000 Manufacturing OverheadVariances ExampleZippyStandard Cost VariancesImmaterial AmountsClose toCost of Goods SoldWork in ProcessFinished GoodsCost of Goods Sold. Material AmountsClose byapportioning to:Disposing of VariancesAdvantagesImproved cost control and performanceevaluation.Better informationfor planning anddecision making.Possible reductionsin production costs.Advantages of Standard CostsDisadvantagesEmphasis onnegativeexceptions mayimpact morale.Emphasis on negativeexceptions maylead to under-reporting.It may be difficultto determinewhich variancesare significant.Disadvantages of Standard CostsJIT systems may reduce unfavorable variances.Long-term agreementswith suppliers eliminateprice variances.Emphasis on qualityreduces materialquantity variances. Well-trained flexiblework force reduces laborefficiency variance.JIT Systems and Variance AnalysisEnd of Chapter 23