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

Standard Cost Systems Based on carefully predetermined amounts. Used for planning labor, material and overhead requirements. The expected level of performance. Benchmarks for measuring performance.

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Standard Cost SystemsChapter 23Benchmarks for measuring performance.The expected level of performance.Based on carefully predetermined amounts.Used for planning labor, material and overhead requirements.Standard Costs are Standard Cost SystemsDirect MaterialType of Product CostAmountDirect LaborManufacturing OverheadStandard costA standard cost variance is the amount by which an actual cost differs from the standard cost.Standard Cost SystemsType of Product CostAmountThis variance is unfavorable because the actual cost exceeds the standard cost. This variance is favorable because the actual cost is less than the standard cost. Standard costStandard Cost SystemsDirect LaborManufacturing OverheadDirect MaterialPrepare standard cost performance reportConduct next period’s operations Analyze variances Identify questions Receive explanationsTake corrective actionsBeginVariance AnalysisShould we use normal standards or ideal standards?EngineerManagerial AccountantEstablishing and Revising Standard CostsNormal standards should be set at levels that are currently attainable with reasonable andefficient effort.Production managerI agree. Ideal standards, that are based on perfection, are unattainable and therefore discouraging to most employees.Human Resources ManagerEstablishing and Revising Standard 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 competitive bids for the quality and quantity desired.Quantity StandardsDirect Material Standards Price Standards 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 Time StandardsRate StandardsDirect Labor Standards Use time and motion studies for each labor operation.Use wage surveys and labor 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 StandardsActivity StandardsRate StandardsManufacturing Overhead Standards The activity is the cost driver used to calculate the overhead rate.The rate is based on an estimate of total overhead at the normal level 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 for Variance Analysis The difference between the actual price and the standard priceThe difference between the actual quantity and the 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 for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceA General Model for Variance 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 with direct 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 for the material was a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.Material Variances Question 1ZippyThe actual price per pound paid for the 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 Variances Question 1ZippyMaterial Variances Question 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 Variances Question 2Zippy The standard quantity of material that should have been used to produce 1,000 Zippies is a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds.Material Variances Question 3Zippy The standard quantity of material that should have been used to produce 1,000 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 Variances Question 3ZippyHanson’s material quantity variance (MQV) for the week was a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.Material Variances Question 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 Variances Question 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 Variances SummaryZippyI am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it.Responsibility for Material 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 labor for the week was a. $8.20 per hour. b. $8.00 per hour. c. $7.80 per hour. d. $7.60 per hour.Labor Variances Question 1ZippyHanson’s actual rate (AR) for labor for 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 Variances Question 1ZippyHanson’s labor rate variance (LRV) for the week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable.Labor Variances Question 2ZippyHanson’s labor rate variance (LRV) for the 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 Variances Question 2Zippy The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours.Labor Variances Question 3Zippy The standard hours (SH) of labor that should have been worked to produce 1,000 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 Variances Question 3ZippyHanson’s labor efficiency variance (LEV) for the week was a. $290 unfavorable. b. $290 favorable. c. $400 unfavorable. d. $400 favorable.Labor Variances Question 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 Variances Question 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 Variances SummaryZippyHigh skill, high rateLow skill, low rateUsing highly paid skilled workers to perform unskilled tasks results in an unfavorable rate variance.Production managers who make work assignments are generally responsible for rate variances.Labor Rate VarianceUnfavorable Efficiency VariancePoorly trained workersPoor supervision of workersPoor quality materialsPoorly maintained equipmentLabor Efficiency VarianceI am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. You used too much time because of poorly trained workers and poor supervision.Responsibility for Labor VariancesMaybe I can attribute the labor and material variances to personnel for hiring the wrong people and 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 costs Estimated activity Manufacturing Overhead VariancesOverhead RateContains variable overhead that increases as activity increases.Contains fixed overhead that remains constant as activity changes.Function of activity level chosen 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 Overhead Variances 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 contains a 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 VarianceVolume VarianceManufacturing Overhead Variances Budgeted Applied Actual Overhead at Overhead at Overhead Actual Activity Standard Hours Spending VarianceVolume VarianceManufacturing Overhead VariancesShows how economically overhead services were purchased and how efficiently overhead services were used.Contains both fixed and variable costs.A controllable variance. Budgeted Applied Actual Overhead at Overhead at Overhead Actual Activity Standard Hours Spending VarianceVolume VarianceManufacturing Overhead VariancesCaused by producing at a level other than that used for computing the standard overhead rate. Contains only fixed costs. Hanson’s actual production for the period 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 Overhead Variances 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 Overhead Variances 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 Overhead Variances ExampleZippyStandard Cost VariancesImmaterial AmountsClose to Cost of Goods SoldWork in ProcessFinished GoodsCost of Goods Sold. Material AmountsClose by apportioning to:Disposing of VariancesAdvantagesImproved cost control and performance evaluation.Better information for planning and decision making.Possible reductions in production costs.Advantages of Standard CostsDisadvantagesEmphasis on negative exceptions may impact morale.Emphasis on negative exceptions may lead to under-reporting.It may be difficult to determine which variances are significant.Disadvantages of Standard CostsJIT systems may reduce unfavorable variances.Long-term agreements with suppliers eliminate price variances.Emphasis on quality reduces material quantity variances. Well-trained flexible work force reduces labor efficiency variance.JIT Systems and Variance AnalysisEnd of Chapter 23
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