Cost management accounting and control 6e by hansen mowen guan chapter 09

Compute and journalize the direct materials and direct labor variances, and explain how they are used for control.. Variance Analysis and Accounting: Direct Materials and Direct Labor.

COST MANAGEMENT

Accounting & Control

Hansen▪Mowen▪Guan

Chapter 9Standard Costing: A

Study Objectives

1 Describe how unit input standards are developed, and

explain why standard costing systems are adopted.

2 Explain the purpose of a standard cost sheet.

3 Compute and journalize the direct materials and direct

labor variances, and explain how they are used for

control.

4 Compute overhead variances three different ways, and

explain overhead accounting.

5 Calculate mix and yield variances for direct materials

and direct labor.

Developing Unit Input Standards

• Unit standard cost is the product of

standard price and standard quantity

Developing Unit Input Standards

• Ideal standards demand maximum

efficiency and can be achieved only if

everything operates perfectly

• Currently attainable standards can be achieved under efficient operating

conditions.

• Kaizen standards reflect a planned

improvement and are a type of currently attainable standard.

Developing Unit Input Standards

• Usage of standard costing systems

– Cost management

– Planning and control

– Decision making and product costing

Developing Unit Input Standards

Standard Cost Sheets

Variance Analysis and Accounting: Direct Materials and Direct Labor

Variance Analysis and Accounting: Direct Materials and Direct Labor

• Direct materials price variances can be

computed at the point

– when the direct materials are issued into

production OR

– when the materials are purchased

• This method would require AQ to be defined as the actual quantity purchased, rather than actual

quantity used)

Direct materials usage variances should be computed as

direct materials are issued into production

Variance Analysis and Accounting: Direct Materials and Direct Labor

Variance Analysis and Accounting: Direct Materials and Direct Labor

Accounting for the Direct Labor Rate

and Efficiency Variances

Variance Analysis and Accounting: Direct Materials and Direct Labor

Variance Analysis and Accounting: Direct Materials and Direct Labor

• Investigating direct materials and labor

variances

– Because random variations around the standard are expected, management should establish an

acceptable range of performance.

– The acceptable range is the standard, plus or minus

an allowable deviation.

• The upper control limit is the standard plus the allowable deviation

Disposition of Direct Materials and

Direct Labor Variances Immaterial

Variance Analysis and Accounting: Direct Materials and Direct Labor

Disposition of Direct Materials and

Direct Labor Variances Material

Variance Analysis and Accounting: Direct Materials and Direct Labor

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Accounting for Overhead Variances

Variance Analysis: Overhead Costs

Accounting for Overhead Variances

(continued)

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Variance Analysis: Overhead Costs

Standard Mix Information: Direct Materials

Yield: 120 lbs.

Yield ratio: 0.75 (120 / 160)

Standard cost of yield (SPy): $0.80 per pound ($96 / 120 pounds of yield)

Mix and Yield Variances:

Materials and Labor

Malcom Nut Company produces a batch of 1,600 pounds and produces the following actual results:

Mix and Yield Variances:

Materials and Labor

Mix Variance = Σ(AQi – SMi)SPi

Mix and Yield Variances:

Materials and Labor

Yield variance = (Standard yield – Actual yield) Spy

Standard yield = Yield ratio × Total actual inputs

Yield variance = (1,200 – 1,300)$0.80

= $80 F

Direct Materials Yield Variance

Mix and Yield Variances:

Materials and Labor

Mix and Yield Variances:

Materials and Labor

Standard Mix Information: Direct Labor

Yield: 120 lbs.

Yield ratio: 24 or 2400% (120 / 5)

Standard cost of yield (SPy): $0.45 per pound ($54 / 120 pounds of yield)

Mix and Yield Variances:

Materials and Labor

Mix and Yield Variances:

Materials and Labor

Yield variance = (Standard yield – Actual yield)Spy

COST MANAGEMENT

Accounting & Control

Hansen▪Mowen▪Guan