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Standard Costing System

Standard Costing System. Chapter 4 Managerial Accounting Concepts and Empirical Evidence. Price. Material Variances. Quantity. Rate. Labor Variances. Efficiency. Spending. Overhead (Indirect Costs) Variances. Efficiency. Budget. Volume. Standard Costing Variances. Standard

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Standard Costing System

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  1. Standard CostingSystem Chapter 4 Managerial Accounting Concepts and Empirical Evidence

  2. Price Material Variances Quantity Rate Labor Variances Efficiency Spending Overhead (Indirect Costs) Variances Efficiency Budget Volume Standard Costing Variances Standard Cost Variances

  3. Standards Normal level of production (per month) is 5000 desks 1 sheet of plywood/desk = $20.00 per desk@ $ 20.00 per sheet 2 direct labor hours/desk = $30.00 per desk@ $ 15.00 per hour Indirect costs (2 hours/desk)Variable : $15,000 / 10,000 hours = $ 3.00 per desk Fixed : $5,000 / 10,000 hours = $ 1.00 per desk Total Standard Costs = $ 54.00 per desk Data for Standard CostRen Corporation, Cutting Dept.

  4. Actuals Number of desks produced 4,800 • Sheets of plywood purchased 5,200 • Sheets of plywood put into production 4,824 • Direct labor hours worked 9,500 • Plywood cost per sheet $ 21 • Labor cost per hour $ 16 • Indirect costs Variable $17,100 Fixed $ 4,900 Data for Standard CostRen Corporation, Cutting Dept.

  5. Analysis of Differences (Variances) between Actuals and Standards, Basic Parameters !! • Actual Quantity Purchased (AQ) • Actual Quantity put into Production (AU) • Actual Price (AP) • Standard Quantity Required (SQ) • Standard Price (SP)

  6. 3) 4,824 (AU) * $ 20 (SP) = $ 96,480 4) 4,800 (SQ) * $ 20 (SP) = $ 96,000 Analysis of Differences (Variances) between Actuals and Standards,Ren Corporation Cutting Dept Materials 1) 5,200 (AQ) * $ 21 (AP) = $ 109,000 2) 5,200 (AQ) * $ 20 (SP) = $ 104,000 Price Variance (1-2) Unfavorable = $ 5,200 Quantity Variance(3-4) Unfavorable = $ 4,80

  7. Analysis of Differences (Variances) between Actuals and Standards,Ren Corporation Cutting Dept Labor 1) 9,500 (AQ) * $ 16 (AP) = $ 152,000 2) 9,500 (AQ) * $ 15 (SP) = $ 142,500 Rate Variance (1-2) Unfavorable = $ 9,500 3) 9,600 (SQ) * $ 16 (SP) = $144,000 Efficiency Variance(2-3) Favorable = $ (1,500) 2 hrs Req. per desk * 4,800 desk = 9,600 standard req. hrs for the level of production achieved

  8. Analysis of Differences (Variances) between Actuals and Standards,Ren Corporation Cutting Dept Variable Overhead 1) 9,500 (AQ) * $ 1.80 (AP) = $ 17,100 2) 9,500 (AQ) * $ 1.50 (SP) = $ 14,250 Spending Variance(1-2) Unfavorable = $ 2,850 3) 9,600 (SQ) * $ 1.50 (SP) = $14,400 Efficiency Variance(2-3) Favorable = $ (150)

  9. Analysis of Differences (Variances) between Actuals and Standards,Ren Corporation Cutting Dept Fixed Overhead 1) Actual fixed overhead = $ 4,900 2) Budgeted Fixed overhead = $ 5,000 Budget Variance (1-2) Favorable = $ (100) 3) Standard Fixed overhead = $4,800 for the level of production achieved ($ 0.50 * 9,600) Volume Variance(2-3) unfavorable = $ 200

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