Chapter 10 - Standard costing and analysis of direct costs. After completing this chapter, you should be able to: Describe the elements of a cost control system, describe two ways to set cost standards and distinguish between perfection and practical standards, compute and interpret the direct-material price and quantity variances and the direct-labor rate and efficiency variances,...
Trang 1Standard Costing and Analysis of Direct
Costs Chapter 10
Trang 2Managing Costs
Standard cost
Actual cost
Comparison between standard and actual
performance
level
Cost variance
Trang 3Perfection versus Practical Standards: A Behavioral Issue
Should we use practical standards
or perfection standards?
Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.
Trang 4I agree Perfection
unattainable and therefore discouraging
to most employees.
Perfection versus Practical Standards: A Behavioral Issue
Trang 5Standard Cost Variances
Cost Variance Analysis
Quantity Variance Price Variance
The difference between
the actual price and the
standard price
The difference between the actual quantity and the standard quantity
Trang 6A General Model for Variance
Analysis
A ctual Q uantity A ctual Q uantity S tandard Q uantity × × ×
A ctual P rice S tandard P rice S tandard Price
Price Variance Quantity 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)
AP = Actual Price SQ = Standard Quantity
Trang 7A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity × × ×
Actual Price Standard Price Standard Price
Price Variance Quantity Variance
Standard price is the amount that should
have been paid for the resources acquired.
Trang 8A General Model for Variance
Analysis
× × ×
Actual Price Standard Price Standard Price
Price Variance Quantity Variance
Standard quantity is the quantity that should
have been used.
Trang 9Significance of Cost Variances
1 Size of variance
1. Dollar amount
2. Percentage of standard
2 Recurring variances
3 Trends
4 Controllability
5 Favorable variances
6 Costs and benefits of
investigation
What clues help me
to determine the
variances that I should
investigate?
Trang 10If I buy cheaper materials, my direct-materials expenses will be lower than what is budgeted Then I’ll get my bonus
But we may lose customers because of
lower quality
Behavioral Impact of Standard
Costing
Trang 11Interaction among Variances
I 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
Trang 12Standard Costs and Product
Standard Costs and Product
Costing
Standard material and labor costs
are entered into Work-in-Process
inventory instead of actual costs.
Standard material and labor costs
are entered into Work-in-Process
inventory instead of actual costs.
Standard cost variances are closed directly to Cost of Goods Sold
Standard cost variances are closed directly to Cost of Goods Sold
Trang 13Advantages of Standard Costing
Management by Exception
Stable Product
Costs
Sensible Cost Comparisons
Advantages
Performance
Trang 14Criticisms of Standard Costing
Not specific
Focus on cost minimization
Too aggregate,
too late
Disadvantages
Too much focus
on direct-labor
Narrow definition
Stable production
required Shorter life
cycles
Trang 15Use of Standard Costs
for Product Costing
Actual quantity at
standard cost
Raw-material Inventory
Unfavorable Favorable
variance variance
Direct-Material Price Variance
Actual quantity at actual cost
Accounts Payable
Trang 16Unfavorable Favorable
variance variance
Direct-Material Quantity Variance
Standard quantity
at standard price
Work-in-Process Inventory
Use of Standard Costs
for Product Costing
Actual quantity at standard cost
Raw-material Inventory
Trang 17Unfavorable Favorable
variance variance
Direct-Labor Rate Variance
Actual quantity at actual cost
Wages Payable
Standard quantity
at standard price
Work-in-Process Inventory
Use of Standard Costs
for Product Costing
Unfavorable Favorable
variance variance
Direct-Labor Efficiency Variance
Trang 18Use of Standard Costs
for Product Costing
variance variance
Cost of Goods Sold