Chapter 10 standard costing and performance measures for today s manufacturing environment
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Chapter 10: Standard Costing and Performance Measures for Today’s Manufacturing Environment. Standard Costing Direct-material price and quantity variances Material purchase price variances and material usage variances Direct-labor rate and efficiency variances Problems.

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Chapter 10: Standard Costing and Performance Measures for Today’s Manufacturing Environment

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Chapter 10 standard costing and performance measures for today s manufacturing environment

Chapter 10:Standard Costing and Performance Measures for Today’s Manufacturing Environment

  • Standard Costing

  • Direct-material price and quantity variances

  • Material purchase price variances and material usage variances

  • Direct-labor rate and efficiency variances

  • Problems


Standard costing and variances

Standard Costing and Variances

Standard Costing:a predetermined cost for the production of goods or services, which serve as a benchmark against which to compare the actual cost.

Cost Variance:difference between actual and standard cost.

Favorable Variance:when the variance between standard and actual costs are good for the company.

Unfavorable Variance:when the variance between standard and actual costs are not good for the company.

Variance Analysis:1- from a product costing perspective, to understand what is causing the variances.

2- from a managerial control and responsibility perspective to provide the proper incentive for managers


Standard costing and variances1

Standard Costing and Variances

Standard Directtotal amount of material normally required

Material Quantity:to produce a finished product (including

allowances for waste and inefficiency.

Standard Directtotal delivered cost, after subtracting any

Material Price:purchase discounts.

Standard Directnumber of hours normally needed to

Labor Quantity:manufacture one unit or product

Standard Directtotal hourly cost of compensation, including

Labor Rate:fringe benefits.


Standard costing and variances definitions

Standard Costing and Variances: Definitions

Variables

SP = Standard price of input

SQ = Standard quantity input units/outputs (e.g. four tires/car)

SQA = Standard quantity allowed for acutal units produced

(SQ*units produced)

AQP = Actual quantity purchased

AQU =Actual quantity used (produced)

AP = Actual price

Direct Material Price Variance = (AP-SP) * AQP

Direct Material Quantity Variance = (AQU-SQA)*SP

Direct Materials Budget Variance = Price variance - Quantity Variance

(These formulas apply similarly for direct labor)


Variance analysis for managerial control

Variance Analysis for Managerial Control

Total Costs are broken down for Analysis

Direct Materials

Direct Labor

Variable Overhead

Fixed Overhead


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