24-1
PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
Copyright © 2012 The McGraw-Hill Companies, Inc.
McGraw-Hill/Irwin
Standard Cost SystemsStandard Cost Systems
Chapter 24
24-2
Benchmarks formeasuring performance.
The expected levelof performance.
Based on carefullypredetermined amounts.
Used for planning labor, materialand overhead requirements.Standard
Costs are
Standard Cost SystemsStandard Cost Systems
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DirectMaterial
Type of Product Cost
Am
ou
nt
DirectLabor
ManufacturingOverhead
Standard cost
A standard cost varianceis the amount by which
an actual cost differs fromthe standard cost.
A standard cost varianceis the amount by which
an actual cost differs fromthe standard cost.
Standard Cost SystemsStandard Cost Systems
24-4
This variance is unfavorable because the actual cost
exceeds the standard cost.
This variance isfavorable because
the actual costis less than thestandard cost.
Standard Cost SystemsStandard Cost Systems
DirectMaterial
Type of Product Cost
Am
ou
nt
DirectLabor
ManufacturingOverhead
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Actual and Standard Quantities and Costs
24-6
EngineerManagerialAccountant
Establishing and Revising Establishing and Revising Standard CostsStandard Costs
Productionmanager
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Use product design specifications.
Use competitivebids for the quality
and quantity desired.
QuantityStandards
Direct Materials Standards Direct Materials Standards
PriceStandards
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TimeStandards
RateStandards
Direct Labor Standards Direct Labor Standards
Use time and motion studies for
each labor operation.
Use wage surveys and
labor contracts.
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ActivityStandards
RateStandards
Manufacturing Overhead Manufacturing Overhead Standards Standards
The activity is the cost driver used to
calculate the overhead rate.
The rate is basedon an estimate of totaloverhead at the normal
level of activity.
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Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Price Variance Quantity Variance
A General Model for Variance A General Model for Variance Analysis Analysis
Standard price is the amount that should have been paid for the resources acquired.
Standard quantity is the quantity that should have been used for the actual good output.
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Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Material Price Variance
Material Quantity Variance
MPV =AQ(AP - SP) MQV = SP(AQ - SQ) MPV = Price Variance MQV = Quantity VarianceAQ = Actual Quantity SP = Standard PriceAP = Actual Price AQ = Actual Quantity SP = Standard Price SQ = Standard Quantity
A General Model for Variance A General Model for Variance Analysis Analysis
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Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate
Labor Rate Variance
Labor Efficiency Variance
LRV = AH(AR - SR) LEV = SR(AH - SH)
LRV = Labor Rate Variance LEV = Labor Efficiency VarianceAH = Actual Hours SR = Standard Rate AR = Actual Rate AH = Actual HoursSR = Standard Rate SH = Standard Hours
Labor Rate and Efficiency Labor Rate and Efficiency VariancesVariances
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ManufacturingManufacturing Overhead Overhead VariancesVariances
Recall that overhead costs are applied to products and services using a
predetermined overhead rate (POHR):
POHR =
Applied Overhead = POHR × Standard Activity
Estimated total overhead costs
Estimated activity
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Budgeted Applied Actual Overhead at Overhead at Overhead Actual Activity Standard Hours
Spending Variance
VolumeVariance
Manufacturing Overhead Manufacturing Overhead VariancesVariances
Shows how economically overheadServices were purchased and howefficiently overhead services were
used. Contains both fixed andvariable costs.
A controllable variance.
Caused by producing ata level other than that
used for computing thestandard overhead rate.
Contains only fixedcosts.
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Standard Cost VariancesStandard Cost Variances
Close to:Cost of Goods Sold
Work in ProcessFinished GoodsCost of Goods Sold
Close byapportioning to:
Disposing of VariancesDisposing of Variances
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I am not responsible for this unfavorable material
quantity variance.
You purchased cheapmaterial, so my peoplehad to use more of it.
Evaluating Variances From Evaluating Variances From Different PerspectivesDifferent Perspectives
You used too much material because of poorly trained workers and poorly maintained equipment.
Also, your poor scheduling sometimes requires me to rush order material at a higher price,
causing unfavorable price variances.
Production Manager Purchasing Agent
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I am not responsible for the unfavorable labor
efficiency variance!
You purchased cheapmaterial, so it took more
time to process it.
Evaluating Variances From Evaluating Variances From Different PerspectivesDifferent Perspectives
Production Manager Purchasing Agent
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Summary of Variance Summary of Variance Computations and Manager Computations and Manager ResponsibilitiesResponsibilities
Variance Computation Manager ResponsibleMaterials
Price variance AQ × (SP – AP) Purchasing agentQuantity variance SP × (SQ – AQ) Production manager
LaborRate Variance AH × (SR – AR) Production managerEfficiency variance SR × (SH – AH) Production manager
OverheadSpending variance Budgeted OH at Actual Production Production manager for
Level – Actual OH the controllable costs.
Volume variance Actual OH at Standard Rate – None – A result of producing Budgeted OH at Actual Production Level at a level other than normal.
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End of Chapter 24End of Chapter 24
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