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Managerial Accounting Second Edition Weygandt / Kieso / Kimmel. Prepared by:. Ellen L. Sweatt. Georgia Perimeter College. ELS. Performance Evaluation Through Standard Costs. Standards. Are common in business Those imposed by government are regulations Fair Labor Standards Act

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Managerial AccountingSecond EditionWeygandt / Kieso / Kimmel

Prepared by:

Ellen L. Sweatt

Georgia Perimeter College

ELS

standards
Standards
  • Are common in business
  • Those imposed by government are regulations
    • Fair Labor Standards Act
    • Equal Employment Opportunity
  • May extend to personnel matters
    • Employee absenteeism
    • Ethical codes of conduct
    • Quality control standards
    • Standard costs for goods and services
standard costs vs budgets
Standard Costs vs Budgets

A standard is a unit amount.

A budget is a total amount.

setting standard costs is difficult
Setting Standard Costs Is Difficult

Requires input from all persons who have responsibility for costs and quantities.

  • Purchasing agents
  • Product managers
  • Quality control engineers
  • Production supervisors
ideal standards
Ideal Standards

Standards based on the optimum level of performance under perfect operating conditions.

normal standards
Normal Standards

Standards based on an efficient level of performance that are attainable under expected operating conditions.

normal standards1
Normal Standards...

Should be rigorous but attainable.

direct materials price standard

Illustration 8-2

Unit Price

Purchase price, net of discounts $2.70Freight .20Receiving and handling .10Standard direct materials price per pound$3.00

Direct Materials Price Standard

The cost per unit of direct materials that should be incurred, including amounts for related costs such as receiving, storing, handling.

direct materials quantity standard

Illustration 8-3

Quantity Item (Pounds)

Required materials 3.5Allowance for waste .4Allowance for spoilage .1Standard direct materials quantity per unit 4.0

Direct Materials Quantity Standard

The quantity of direct material that should be used per unit of finished goods.

direct materials standard

Illustration 8-3

Direct Materials Standard
  • Is the standard direct materials price times the standard direct materials quantity.
  • For Xonic the standard direct materialscost per gallon is: $12.00 ($3.00 x 4.0 pounds).
direct labor price standard

Illustration 8-4

Direct Labor Price Standard

The rate per hour that should be incurred for direct labor, including allowances for unavoidable wastes and normal spoilage.

Item Price

Hourly wage rate $7.50COLA .25

Payroll taxes .75Fringe benefits 1.50Standard direct labor rate per pound$10.00

direct labor quantity standard

Illustration 8-5

Quantity Item (Hours)

Actual production time 1.5Rest periods and cleanup .2Setup and downtime .3Standard direct labor hours per unit2.0

Direct Labor Quantity Standard

The time that should be required to make one unit of a product.

direct labor standard

Illustration 8-3

Direct Labor Standard
  • Is the standard direct labor rate times the standard direct labor hours.
  • For Xonic the standard direct labor cost per gallon is $20.00 ($10.00 x 2.0 hours).
standard hours allowed
Standard Hours Allowed

The hours that should have been worked for the units produced.

With standard costs, manufacturing overhead costs are applied to work in process on the basis of standard hours allowed.

standard predetermined overhead rate
Standard Predetermined Overhead Rate

An overhead rate determined by dividing budgeted overhead costs by an expected standard activity index.

manufacturing overhead

Illustration 8-6

Manufacturing Overhead

Budgeted Standard Overhead RateOverhead Direct per Direct Costs Amount  Labor Hours = Labor Hour Variable $ 79,200 26,400 $3.00Fixed 52,800 26,400 2.00Total $132,000 26,400 $5.00

standard cost per gallon

Illustration 8-7

Standard Cost per Gallon

A standard cost card is

prepared for each product.

variances
Variances

The difference between total actual costs and total standard costs.

various relationships

Illustration 8-10

=

=

+

=

=

+

=

=

Various Relationships

Total

Materials

Variance

Materials

Price

Variance

Materials

Quantity

Variance

Total

Variance

Total

Labor

Variance

Labor

Price

Variance

Labor

Quantity

Variance

Total

Overhead

Variance

Overhead

Controllable

Variance

Overhead

Volume

Variance

+

total materials variance
Total Materials Variance

The difference between the actual quantity times the actual price and the standard quantity times the standard price of materials.

materials price variance
Materials Price Variance

The difference between the actual quantity times the actual price and the actual quantity times the standard price for material.

materials quantity variance
Materials Quantity Variance

The difference between the actual quantity times the standard price and the standard quantity times the standard price for materials.

total labor variance
Total Labor Variance

The difference between actual hours times the actual rate and standard hours times the standard rate for labor.

labor price variance
Labor Price Variance

The difference between the actual hours times the actual rate and the actual hours times the standard rate for labor.

labor quantity variance
Labor Quantity Variance

The difference between the actual hours times the standard rate and the standard hours times the standard rate for labor.

overhead controllable variance
Overhead Controllable Variance

The difference between actual overhead incurred and overhead budgeted for the standard hours allowed.

overhead volume variance
Overhead Volume Variance

The difference between overhead budgeted for the standard hours allowed and the overhead applied.

total overhead variance
Total Overhead Variance

The difference between actual overhead costs and overhead costs applied to work done.

reporting variances

Illustration 8-30

Xonic, Inc.

Variance Report - Purchasing Department

For the Week June 8, 2002

Type of Quantity Actual Standard Price

Materials Purchased Price Price Variance Explanation

x 100 4,200 lbs. $3.10 $3.00 $420 U Rush order

x 142 1,200 units 2.75 2.80 60 F Quantity discount

x 85 600 doz. 5.20 5.10 60 U Regular supplier

on strike Total price variance $420 U

Reporting Variances
statement presentation of variances

Illustration 8-31

Xonic, Inc.Income StatementFor the Month Ended June 30, 2002

Sales $60,000

Cost of goods sold (at standard) 42,000

Gross profit (at standard) 18,000

Variances

Materials price 420

Materials quantity 600

Labor price (420)

Labor quantity 1,000

Overhead controllable 500

Overhead volume 400

Total variance unfavorable 2,500

Gross profit (actual) 15,500

Selling and administrative expenses 3,000

Net income $12,500

Statement Presentation of Variances