Bài giảng Managerial Accounting - Chapter 8: Performance Evaluation Through Standard Costs

John Wiley & Sons, Inc.Prepared byKarleen Nordquist..The College of St. Benedict... and St. John’s University...with contributions byMarianne Bradford..The University of Tennessee...Gregory K. Lowry.Macon Technical Institute..Managerial Accounting Weygandt, Kieso, & KimmelChapter 8Performance Evaluation Through Standard CostsAfter studying this chapter, you should be able to:1 Distinguish between a standard and a budget.2 Identify the advantages of standard costs.3 Describe how standards are set.4 Indicate the formulas for determining direct materials and direct labor variances.5 State the formulas for determining manufacturing overhead variances.6 Discuss the reporting of variances.7 Identify the features of a standard cost accounting system.Chapter 8Performance Evaluation Through Standard CostsPreview of Chapter 8Need for StandardsStandards vs. BudgetsWhy Standard Costs?Setting StandardsIdeal vs. NormalCase StudyPERFORMANCE EVALUATION THROUGH STANDARD COSTSPreview of Chapter 8Variances from StandardsAnalyzingReportingStandard Cost Accounting SystemJournal EntriesLedger AccountsStatement PresentationPERFORMANCE EVALUATION THROUGH STANDARD COSTSThe Need for StandardsStandards are common in business; those imposed by government agencies are often called regulations. In managerial accounting, standard costs are predetermined unit costs, which are used as measures of performance. The focus in this text is on manufacturing standards; however, standards are applicable to many types of businesses.Distinguish between a standard and a budget.Study Objective 1Distinguishing Between Standards and BudgetsConceptually, standards and budgets are essentially the same. Both are pre-determined costs and both contribute significantly to management planning and control.A standard is a unit amount, whereas a budget is a total amount.A standard is concerned with each individual cost component that makes up the entire budget.Standard costs may be incorporated into a cost accounting system.Identify the advantages of standard costs.Study Objective 2Why Standard Costs?Carefully established and prudently used standard costs offer the following advantages to an organization:They facilitate management planning.They promote greater economy by making employees more “cost conscious.”They are useful in setting selling prices.They contribute to management control by providing a basis for the evaluation of cost control.They are useful in highlighting variances in management by exception.They simplify the costing of inventories and reduce clerical costs.Describe how standards are set.Study Objective 3Setting Standard CostsThe setting of standard costs to produce a unit of product is a difficult task.Setting standards requires input from all persons who have responsibility for costs and quantities. To be effective in controlling costs, standard costs need to be current at all times. Thus, standards should be under continuous review and should be changed whenever it is determined that the existing standards are not a good measure of performance.Ideal versus Normal StandardsStandards may be set at one of two levels: Ideal standards represent optimum levels of performance under perfect operating conditions. Normal standards represent efficient levels of performance that are attainable under expected operating conditions.Most companies that use standards set them at a normal level. Properly set normal standards should be rigorous but attainable.Setting Standard Costs:A Case StudyTo establish the standard cost of producing a product, it is necessary to establish standards for each manufacturing cost element - direct materials, direct labor, and manufacturing overhead. The standard for each element is derived from a consideration of the standard price to be paid and the standard quantity to be used.To illustrate, assume that Xonic, Inc., wishes to use standard costs to measure performance in filling an order for 1,000 gallons of Weed-O, a liquid weed killer.WEED-ODirect Materials Price StandardThe direct materials price standard is the cost per unit of direct materials that should be incurred.This standard is based on the purchasing department’s best estimate of the cost of raw materials.This standard should include an amount for related costs such as receiving, storing, and handling.Direct Materials Quantity StandardThe direct materials quantity standard is the quantity of direct materials that should be used per unit of finished goods.This standard is expressed as a physical measure, such as pounds, barrels, or board feet.This standard should include allowances for unavoidable waste and normal spoilage.WEED-OA Case Study:Direct MaterialsThe direct materials price standard per pound of material for Xonic’s weed killer is: Unit PricePurchase price, net of discounts $2.70Freight .20Receiving and handling .10Standard direct materials price per pound $3.00Illustration 8-2The direct materials quantity standard per unit of weed killer is: Quantity Item (Pounds)Required materials 3.5Allowance for waste .4Allowance for spoilage .1Standard direct materials quantity per unit 4.0Illustration 8-3A Case Study: Standard Materials Cost per UnitThe standard direct materials cost per unit is the standard direct materials price times the standard direct materials quantity.For Xonic, Inc., the standard direct materials cost per gallon of Weed-O is $12.00 ($3.00 x 4.0 pounds).WEED-ODirect Labor Price StandardThe direct labor price standard is the rate per hour that should be incurred for direct labor.This standard is based on current wage rates adjusted for anticipated changes, such as cost of living adjustments included in many union contracts.This standard generally includes employer payroll taxes and fringe benefits, such as paid holidays and vacations.Direct Labor Quantity StandardThe direct labor quantity standard is the time that should be required to make one unit of the product.This standard is especially critical in labor-intensive companies.In setting this standard, allowances should be made for rest periods, cleanup, machine setup, and machine downtime.WEED-OA Case Study:Direct LaborThe direct labor price standard per direct labor hour for Xonic, Inc., is: Item PriceHourly wage rate $7.50COLA .25Payroll taxes .75Fringe benefits 1.50Standard direct labor rate per pound $10.00Illustration 8-4For Xonic, Inc., the direct labor quantity standard is: Quantity Item (Hours)Actual production time 1.5Rest periods and cleanup .2Setup and downtime .3Standard direct labor hours per unit 2.0Illustration 8-5A Case Study: Standard Labor Cost per UnitThe standard direct labor cost per unit is the standard direct labor rate times the standard direct labor hours.For Xonic, Inc., the standard direct labor cost per gallon of Weed-O is $20.00 ($10.00 x 2.0 hours).WEED-OManufacturing Overhead StandardFor manufacturing overhead, a standard predetermined overhead rate is used in setting the standard.This overhead rate is determined by dividing budgeted overhead costs by an expected standard activity index.WEED-OA Case Study:Manufacturing OverheadXonic, Inc., uses standard direct labor hours as the activity index. The company expects to produce 13,200 gallons of Weed-O. Since it takes two direct labor hours for each gallon, total standard direct labor hours are 26,400 (13,200 x 2). At this level of activity, overhead costs are expected to be $132,000, of which $79,200 are variable and $52,800 are fixed.Xonic’s standard predetermined overhead rates are computed as shown below:Illustration 8-6Budgeted Standard Overhead RateOverhead Direct per Direct  Costs Amount  Labor Hours = Labor Hour Variable $ 79,200 26,400 $3.00 Fixed 52,800 26,400 2.00 Total $132,000 26,400 $5.00 A Case Study: Standard Overhead Cost per UnitThe standard manufacturing overhead rate per unit is the predetermined overhead rate times the activity index quantity standard.For Xonic, Inc., which uses direct labor hours as its activity index, the standard manufacturing overhead rate per gallon of Weed-O is $10.00 ($5.00 x 2.0 hours).WEED-OWEED-OTotal Standard Cost per UnitThe total standard cost per unit is the sum of the standard costs of direct materials, direct labor, and manufacturing overhead. For Xonic, Inc., the total standard cost per gallon of Weed-O is $42, as shown on the following standard cost card:A standard cost card is prepared for each product. This card provides the basis for determining variances from standards.Product: Weed-O Unit Measure: Gallon Manufacturing Standard Standard Standard Cost Elements Quantity x Price = Cost Direct materials 4 pounds $ 3.00 $12.00 Direct labor 2 hours $10.00 $20.00 Manufacturing overhead 2 hours $ 5.00 $10.00  $42.00 Illustration 8-7Variances from StandardsA variance is the difference between total actual costs and total standard costs. When actual costs exceed standard costs, the variance is unfavorable. An unfavorable variance suggests that too much was paid for materials and labor or that there were inefficiencies in using materials and labor. If actual costs are less than standard costs, the variance is favorable. Favorable variances indicate efficiencies in incurring costs and in using materials and labor. However, be careful: a favorable variance could be obtained by using inferior materials.Variances IllustratedTo illustrate variances, assume that in producing 1,000 gallons of Weed-O in the month of June, Xonic, Inc., incurred the following costs:The total standard cost of Weed-O is $42,000 (1,000 gallons x $42). Thus, the total variance is $2,500, as shown:Direct materials $13,020Direct labor 20,580Variable overhead 6,500Fixed overhead 4,400Total actual costs $44,500Illustration 8-8Actual costs $44,500Standard costs 42,000Total variance $ 2,500Illustration 8-9Analyzing Variances To properly interpret the significance of a variance, you must analyze it to determine the underlying factors. Analyzing variances begins with a determination of the cost elements that comprise the variance. For each manufacturing cost element, a total dollar variance is computed. Then this variance is analyzed into a price variance and a quantity variance.Relationships of VariancesTotalVarianceTotalMaterialsVarianceMaterialsPriceVarianceMaterialsQuantityVariance==+TotalLaborVarianceLaborPriceVarianceLaborQuantityVariance==+TotalOverheadVarianceOverheadControllableVarianceOverheadVolumeVariance==+Illustration 8-10Indicate the formulas for determining direct materials and direct labor variances.Study Objective 4Direct Materials Variances: TotalThe total materials variance is computed from the following formula:In completing the order for 1,000 gallons of Weed-O, Xonic used 4,200 pounds of direct materials purchased at a cost of $3.10 per unit. For Xonic, Inc., the total materials variance is $1,020 ($13,020 - $12,000) unfavorable as shown below:(4,200 x $3.10) – (4,000 x $3.00) = $1,020 UActual Quantityx Actual Price(AQ) x (AP)Standard Quantityx Standard Price(SQ) x (SP)Total MaterialsVariance(TMV)=–Illustration 8-25Direct Materials Variances: PriceThe materials price variance is computed from the following formula:For Xonic, Inc., the materials price variance is $420 ($13,020 - $12,600) unfavorable as shown below:(4,200 x $3.10) – (4,200 x $3.00) = $420 UActual Quantityx Actual Price(AQ) x (AP)Actual Quantityx Standard Price(AQ) x (SP)MaterialsPrice Variance(MPV)=–Illustration 8-25Direct Materials Variances: QuantityThe materials quantity variance is computed from the following formula:For Xonic, Inc., the materials quantity variance is $600 ($12,600 - $12,000) unfavorable as shown below:(4,200 x $3.00) – (4,000 x $3.00) = $600 UActual Quantityx Standard Price(AQ) x (SP)Standard Quantityx Standard Price(SQ) x (SP)MaterialsQuantity Variance(MQV)=–Illustration 8-13Direct Materials Variances: SummaryThe total materials variance of $1,020 (U), therefore, consists of the following:Illustration 8-14Materials price variance $ 420 U Materials quantity variance 600 UTotal materials variance $1,020 UMatrix for Direct Materials VarianceA matrix is sometimes used to determine and analyze a variance.Actual Quantity x Actual Price(AQ) x (AP)4,200 x $3.10 = $13,0201Actual Quantity x Standard Price(AQ) x (SP)4,200 x $3.00 = $12,6002Standard Quantity x Standard Price(SQ) x (SP)4,000 x $3.00 = $12,0003Total Variance – $13,020 – $12,000 = $1,020 U13Price Variance – $13,020 – $12,600 = $420 U12Quantity Variance – $12,600 – $12,000 = $600 U23Illustration 8-15Causes of Materials VariancesThe causes of variances may relate to both internal and external factors.The investigation of a materials price variance usually begins in the purchasing department.A variance may be beyond the control of purchasing such as with inflation or actions by groups over which the company has no control.The starting point for determining the cause(s) of a materials quantity variance is in the production department.A variance may be beyond the control of production, such as with inferior materials bought by purchasing. Direct Labor Variances: TotalThe total labor variance is computed from the following formula:In completing the order for 1,000 gallons of Weed-O, Xonic incurred 2,100 direct labor hours at an average hourly rate of $9.80. The standard hours allowed for the units produced were 2,000 (1,000 x 2 hours) and the standard rate was $10 per hour.The total labor variance is $580 ($20,580 - $20,000) unfavorable as shown below:(2,100 x $9.80) – (2,000 x $10.00) = $580 UActual Hoursx Actual Rate(AH) x (AR)Standard Hoursx Standard Rate(SH) x (SR)Total LaborVariance(TLV)=–Illustration 8-16Direct Labor Variances: PriceThe labor price variance is computed from the following formula:For Xonic, Inc., the labor price variance is $420 ($20,580 - $21,000) favorable as shown below:(2,100 x $9.80) – (2,100 x $10.00) = $420 FActual Hoursx Actual Rate(AH) x (AR)Actual Hoursx Standard Rate(AH) x (SR)LaborPrice Variance(LPV)=–Illustration 8-17Direct Labor Variances: QuantityThe labor quantity variance is computed from the following formula:For Xonic, Inc., the labor quantity variance is $1,000 ($21,000 - $20,000) unfavorable as shown below:(2,100 x $9.80) – (2,000 x $10.00) = $1,000 UActual Hoursx Standard Rate(AH) x (SR)Standard Hoursx Standard Price(SH) x (SR)LaborQuantity Variance(LQV)=–Illustration 8-18Direct Labor Variances: SummaryThe total labor variance of $580 unfavorable, therefore, consists of the following:Illustration 8-19Labor price variance $ 420 FLabor quantity variance 1,000 UTotal labor variance $ 580 UMatrix for Direct Labor VarianceActual Hours x Actual Rate(AH) x (AR)2,100 x $9.80 = $20,5801Actual Hours x Standard Rate(AH) x (SR)2,100 x $10.00 = $21,0002Standard Hours x Standard Rate(SH) x (SR)2,000 x $10.00 = $20,0003Total Variance – $20,580 – $20,000 = $580 U13Price Variance – $20,580 – $21,000 = $420 F12Quantity Variance – $21,000 – $20,000 = $1,000 U23Illustration 8-20Causes of Labor VariancesLabor price variances usually result from two factors:paying workers higher than expected wages, andmisallocation of workers.When companies are not unionized, there is a higher likelihood of these variances.The responsibility of these variances usually rests with the manager that authorized the wage increase or the production department.Labor quantity variances relate to the efficiency of the workers.These variances are usually the responsibility of the production department.State the formulas for determining manufacturing overhead variances.Study Objective 5Manufacturing Overhead VariancesThe computation of the manufacturing overhead variances is conceptually the same as the computation of the materials and labor variances. However, the task is more challenging for manufacturing overhead because both variable and fixed overhead costs must be considered.Actual and Applied Overhead CostsAs indicated earlier, Weed-O’s manufacturing overhead costs incurred were $10,900, as follows:Variable overhead $ 6,500Fixed overhead 4,400Total actual overhead $10,900Illustration 8-21With standard costs, manufacturing overhead costs are applied to work in process on the basis of the standard hours allowed, which are the hours that should have been worked for the units produced. For the Weed-O order, the standard hours allowed are 2,000 and the predetermined overhead rate is $5 per direct labor hour. Thus, overhead applied is $10,000 (2,000 x $5). Note that actual hours of direct labor (2,100) are not used in applying manufacturing overhead.Overhead Variances: TotalThe formula for the total overhead variance is:Thus, for Xonic, Inc., the total overhead variance is $900 unfavorable as shown below:$10,900 – $10,000 = $900 UActual OverheadOverhead AppliedTotal OverheadVariance=–Illustration 8-22The total overhead variance is generally analyzed through a price variance and a quantity variance. The name usually given to the price variance is the overhead controllable variance, whereas the quantity variance is referred to as the overhead volume variance.Overhead Variances: ControllableThe formula for the overhead controllable variance is:Budgeted overhead is determined from the flexible manufacturing overhead budget for the standard hours allowed.For Xonic, budgeted overhead at the 2,000 standards hours is $10,400 ($4,400 fixed + [$3 variable cost per unit x 2,000]).Thus, Xonic’s overhead controllable variance is $500 unfavorable as shown below:$10,900 – $10,400 = $500 UActual OverheadOverhead BudgetedOverhead ControllableVariance=–Illustration 8-24Overhead Variances: VolumeThe overhead volume variance indicates whether plant facilities were efficiently used during the period. The formula for computing the variance is as follows:For Xonic, Inc., the overhead volume variance is $400 unfavorable as shown below:$10,400 – $10,000 = $400 UOverhead BudgetedOverhead AppliedOverhead Volume Variance=–Illustration 8-25Detailed Analysis of Overhead Volume VarianceThe flexible overhead budget shows that of the budgeted overhead of $10,400, $6,000 of that amount is variable and $4,400 is fixed. The predetermined overhead rate of $5 consists of $3 variable and $2 fixed. Therefore:Overhead budgeted Variable costs $6,000 Fixed costs 4,400 $10,400Overhead applied Variable costs (2,000 x $3) 6,000 Fixed costs (2,000 x $2) 4,000 10,000Overhead volume variance – unfavorable $ 400 Illustration 8-26A more detailed analysis shows that the overhead volume variance relates solely to fixed costs (fixed costs budgeted $4,400 - fixed costs applied $4,000). Thus the volume variance measures the amount that fixed overhead costs are under- or overapplied.Alternative Formula forOverhead Volume VarianceSince total fixed costs remain the same at every level of activity within the relevant range and a predetermined overhead rate based on normal capacity is used in applying overhead, it follows that if the standard hours allowed are less than the standard hours at normal capacity, fixed overhead costs will be underapplied. In contrast, if production exceeds normal capacity, fixed overhead costs will be overapplied. Thus, an alternative formula is:In Xonic, Inc., normal capacity is 26,400 hours for the year or 2,200 hours for a month (26,400  12), and the fixed overhead rate is $2 per hour. Thus, the $400 unfavorable overhead volume variance can be computed as shown below:$2 x (2,200 – 2,000) = $400 UFixed Overhead RateNormal Capacity Hours – Standard Hours AllowedOverhead Volume Variance=–Overhead Variances: SummaryThe total overhead variance of $900 (U), therefore, consists of the following:Illustration 8-28Overhead controllable variance $500 Overhead volume variance 400 UTotal overhead variance $900 UIn computing overhead variances, it is important to remember the following:Standard hours allowed are used in each of the variances.Budgeted costs for the controllable variance are derived from the flexible bu