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Standard Costs and the Balanced Scorecard

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Standard Costs and the Balanced Scorecard

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    1. Standard Costs and the Balanced Scorecard

    2. Standard Costs

    3. Standard Costs

    4. Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations. Setting Standard Costs

    5. Costs Practical standards - currently attainable with reasonable and efficient effort Ideal standards - based on perfection, are unattainable and discourage most employees. The REACH OUT GOAL. . . .

    6. Note The argument that ideal standards are discouraging has been persuasive for many years. So “normal” defects and waste were built into the standards. In recent years, TQM and other initiatives have sought to eliminate all defects and waste. Ideal standards, that allow for no waste, have become more popular. The emphasis is on improvement over time, not attaining the ideal standards right now.

    7. Direct Material Standards What do you need a std on?

    8. Direct Labor Standards What do you need a std on?

    9. Direct Overhead Standards What do you need a std on?

    10. Standard Cost Card – Variable Production Cost

    11. Standards vs. Budgets

    12. Standard Cost Variances

    13. Standard Cost Variances Why use/looked at? – to identify problem areas in key areas What do you do? – have responsible department investigate. What makes one department responsible?

    14. Variance Analysis Cycle

    15. Standard Cost Variances

    16. A General Model for Variance Analysis

    17. Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka. 0.1 kg. of fiberfill per parka at $5.00 per kg. Last month 210 kgs of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029. Material Variances Example

    18. Material Variances Summary

    19. Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Material Variances Example

    20. Material Variances Summary

    21. Material Variances

    22. Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Material Variances Continued

    23. Material Variances Continued

    24. Material Variances Continued

    25. Isolation of Material Variances

    26. Responsibility for Material Variances

    27. Standard Costs

    28. Labor Variances Example

    29. Labor Rate Variance – A Closer Look

    30. Labor Efficiency Variance – A Closer Look

    31. Responsibility for Labor Variances

    32. Responsibility for Labor Variances

    33. Variance Analysis and Management by Exception

    34. Advantages of Standard Costs

    35. Disadvantages of Standard Costs

    36. The Balanced Scorecard

    37. The Balanced Scorecard

    38. The Balanced Scorecard

    39. Benefits of Balance Scorecard If implemented well: Forces management to articulate a coherent strategy. Strategy is communicated throughout organization. Performance measures are more likely to be consistent with strategy and actionable. Portfolio of measures reduces gaming problems. Feedback loop makes strategy dynamic.

    40. Some Possible Problems Cultural/behavioral Program fatigue. Culture shock/resistance. Every existing performance measure has a champion. Gaming still possible.

    41. Delivery Performance Measures

    42. Delivery Performance Measures

    43. Quick Check ? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days

    44. A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days b. 0.2 days c. 4.1 days d. 13.4 days Quick Check ?

    45. Quick Check ? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the MCE? a. 50.0% b. 1.9% c. 52.0% d. 5.1%

    46. A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the MCE? a. 50.0% b. 1.9% c. 52.0% d. 5.1% Quick Check ?

    47. Quick Check ? A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days

    48. A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time? a. 0.5 days b. 0.7 days c. 13.4 days d. 10.4 days Quick Check ?

    49. End of Chapter 10

    50. Setting Standard Costs

    51. Setting Standard Costs

    52. Setting Standard Costs

    53. Setting Direct Material Standards

    54. Setting Direct Labor Standards

    55. Setting Variable Overhead Standards

    56. Standard Cost Variances

    57. A General Model for Variance Analysis

    58. A General Model for Variance Analysis

    59. Standard Costs

    60. Material Variances Summary

    61. Standard Costs

    62. Note Labor variances: Labor rate variance LRV = AH (AR - SR) Labor efficiency variance LEV = SR (AH - SH) Variable overhead variances: Variable overhead spending variance VOSV = AH (AR - SR) Variable overhead efficiency variance VOEV = SR (AH - SH)

    63. Variable Manufacturing Overhead Variances Example

    64. Quick Check ?

    65. Quick Check ?

    66. Quick Check ?

    67. Quick Check ?

    68. Quick Check ?

    69. Quick Check ?

    70. Variable Manufacturing Overhead Variances

    71. Variable Manufacturing Overhead Variances – A Closer Look

    72. A General Model for Variance Analysis

    73. Quick Check ?

    74. Quick Check ?

    75. Quick Check ?

    76. Quick Check ?

    77. Quick Check ?

    78. Quick Check ?

    79. Quick Check ?

    80. Quick Check ?

    81. Labor Variances Summary

    82. What is the actual price per pound paid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound. Quick Check ?

    83. What is the actual price per pound paid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound. Quick Check ?

    84. Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Quick Check ?

    85. Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Quick Check ?

    86. The standard quantity of material that should have been used to produce 1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds. Quick Check ?

    87. The standard quantity of material that should have been used to produce 1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds. Quick Check ?

    88. Quick Check ? Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.

    89. Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Quick Check ?

    90. Note Materials variances: Material price variance MPV = AQ (AP - SP) Material quantity variance MQV = SP (AQ - SQ) Labor variances: Labor rate variance LRV = AH (AR - SR) Labor efficiency variance LEV = SR (AH - SH)

    91. Note: Using the formulas Materials price variance MPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 F Materials quantity variance MQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka? 2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 U

    92. Quick Check ? Suppose only 190 kgs of fiberfill were used to make 2,000 parkas. What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill. a. $50 F b. $50 U c. $100 F d. $100 U

    93. Suppose only 190 kgs of fiberfill were used to make 2,000 parkas. What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill. a. $50 F b. $50 U c. $100 F d. $100 U Quick Check ?

    94. If the material quantity standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing? a. Yes b. No Quick Check ?

    95. Quick Check ? If the material quantity standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing? a. Yes b. No

    96. Standard Costs

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