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Chapter 9 Standard Costing and Variance Analysis. Fall 2007 Crosson. Learning Objectives:. Responsibility Accounting & Cost Centers Cost Performance Evaluation using Master and Flexible Budgets Standard Costing Basics for Cost Centers

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Chapter 9 standard costing and variance analysis

Chapter 9 Standard Costing and Variance Analysis

Fall 2007

Crosson

Use only with permission of Susan Crosson


Learning objectives

Learning Objectives:

Responsibility Accounting & Cost Centers

Cost Performance Evaluation using Master and Flexible Budgets

Standard Costing Basics for Cost Centers

Performance Evaluation using Standard Costing: Spending and Efficiency Variances

Compute and Analyze DM,DL,VOH, and FOH variances

Use only with permission of Susan Crosson


Responsibility accounting c ost center

Responsibility Accounting:Cost Center:

An information system that classifies data according to a manager’s responsibilities for organizational resources

Manager accountable for costs that have well-defined relationships between the center’s resources and products or services.

Use only with permission of Susan Crosson


Cost performance evaluation using flexible and master budgets

Cost Performance Evaluation using Flexible and Master Budgets

Use only with permission of Susan Crosson


What do you know flexible budget preparation

What Do You Know? BudgetsFlexible Budget Preparation

Look and listen to SE5.

P2 parts 3 & 4

Use only with permission of Susan Crosson


P2 cost performance evaluation

P2 Cost Performance Evaluation Budgets

Use only with permission of Susan Crosson


Performance evaluation using flexible and master budgets

Performance Evaluation using Flexible and Master Budgets Budgets

Standard Costing

Use only with permission of Susan Crosson


Standard costing basics

Standard Costing Basics: Budgets

Master Budget Prepared for year

As part of the Master Budget, Standard Quantities and Rates set for Materials, Labor, Variable Overhead and Fixed Overhead (i.e., predetermined rates—remember applied OH?

During year Journal Entries use these Standards

Managers monitor Cost Centers by computing and analyzing Price and Quantity Variances for Materials, Labor and Variable Overhead and Budget and Volume Variances for Fixed Overhead

Use only with permission of Susan Crosson


Material labor and variable overhead variances

Material, Labor, and Variable Overhead Variances Budgets

Spending or

Price or Rate

Variance

Efficiency or Quantity Variance

Use only with permission of Susan Crosson


BUDGET: Budgets The variable standard cost of producing one case of steel brackets is:

Direct material (5 pounds @ $1 per pound) $ 5.00

Direct labor (2 hours @ $2 per hour) $ 4.00

Variable overhead (2 hours @ $3 per hour) $ 6.00

Thus, total variable cost per case $15.00.

The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH).

Based on a master budget of 20,000 cases.

ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were:

Direct material (5 pounds @ $.90 per pound $ 4.50

Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05

Variable overhead ($148,750/25,000 cases) $ 5.95

The actual fixed overhead was $105,250.

Use the following information to answer questions: The California Steel Works uses a standard costing system.

Use only with permission of Susan Crosson


Material labor and variable overhead variances1

Material, Labor, and Variable Overhead Variances Budgets

Spending or

Price or Rate

Variance

Efficiency or Quantity Variance

Use only with permission of Susan Crosson


Material labor and variable overhead variances2

Material, Labor, and Variable Overhead Variances Budgets

Favorable or Unfavorable Spending or Price or Rate Variance

Favorable or Unfavorable Efficiency or Quantity Variance

Use only with permission of Susan Crosson


Crosswalk to variable overhead account

Crosswalk to Variable Overhead Account Budgets

Variable Overhead

Dr. OH xx

Cr. COGS xx

Dr. COGS xx

Cr. OH xx


Fixed overhead variances

Fixed Overhead Variances Budgets

Budget or

Spending or

Controllable

Variance

Volume or Uncontrollable Variance

Use only with permission of Susan Crosson


Crosswalk to fixed overhead account

Crosswalk to Fixed Overhead Account Budgets

Fixed Overhead

Dr. COGS xx

Cr. OH xx

Dr. OH xx

Cr. COGS xx


BUDGET: Budgets The variable standard cost of producing one case of steel brackets is:

Direct material (5 pounds @ $1 per pound) $ 5.00

Direct labor (2 hours @ $2 per hour) $ 4.00

Variable overhead (2 hours @ $3 per hour) $ 6.00

Thus, total variable cost per case $15.00

The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH).

Based on a master budget of 20,000 cases.

ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were:

Direct material (5 pounds @ $.90 per pound $ 4.50

Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05

Variable overhead ($148,750/25,000 cases)

$ 5.95

The actual fixed overhead was $105,250.

Use the following information to answer questions: The California Steel Works uses a standard costing system.

Use only with permission of Susan Crosson


Fixed overhead variances1

Fixed Overhead Variances Budgets

Favorable or UnfavorableVolume or Uncontrollable Variance

Favorable or Unfavorable

Budget or Spending or

Controllable Variance

Use only with permission of Susan Crosson


What do you know compute and analyze dm dl voh and foh variances
What Do You Know? BudgetsCompute and Analyze DM,DL,VOH, and FOH variances

P4

Look and listen SE6 , SE7, SE8.

Use only with permission of Susan Crosson


What do you know variance analysis

What Do You Know? BudgetsVariance Analysis

P3

P7

Use only with permission of Susan Crosson


Homework

Homework Budgets

P4

Use only with permission of Susan Crosson


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