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

  • 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: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 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

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

Total Costs are broken down for Analysis

Direct Materials

Direct Labor

Variable Overhead

Fixed Overhead


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