09 Standard Costing; A Managerial Control Tool
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Transcript of 09 Standard Costing; A Managerial Control Tool
PPT 9 -1
AGUS SISWANDI
01153056
MANAGEMENT ACCOUNTING
PPT 9 -2
Chapter Nine
Standard Costing: A Managerial Control Tool
PPT 9 -3
Learning Objectives
Explain how unit standards are set and why standard cost systems are adopted.
Explain the purpose of a standard cost sheet.
Describe the basic concepts underlying variance analysis and explain when variances should be investigated.
PPT 9 -4
Learning Objectives (continued)
Compute the materials and labor variances and explain how they are used for control.
Compute the variable and fixed overhead variances and explain their meanings.
Prepare journal entries for materials and labor variances and describe the accounting for overhead variances. (Appendix)
PPT 9 -5
Unit Standard Cost
To determine the unit standard cost for a particular input, two decisions must be made:
1. How much of the input should be used per unit of output (Quantity decision)?
2. How much should be paid for the quantity of the input to be used (Pricing decision)?
PPT 9 -6
Types of Standards
Ideal Standards demand maximum efficiency and can be achieved only if everything operates perfectly.
Currently attainable standards can be achieved under efficient operating conditions.
PPT 9 -7
Sources for Quantitative Standards
1. Historical experience
2. Engineering studies
3. Input from operating personnel
PPT 9 -8
Factors for Price Standards - Materials
1. Market forces
2. Discounts
3. Freight
4. Quality
PPT 9 -9
Factors for Price Standards - Labor
1. Market forces
2. Trade unions
3. Payroll taxes
4. Qualifications
PPT 9 -10
Purposes of Standards
To improve planning and control
To facilitate product costing
PPT 9 -11
Cost Assignment Approaches
Manufacturing Costs
Direct Direct
Materials Labor Overhead
Actual costing system Actual Actual Actual
Normal costing system Actual Actual Budgeted
Standard costing system Standard Standard Standard
PPT 9 -12
A Standard Cost Sheet
Standard Standard Standard
Description Price Usage Cost/Unit
Direct materials $1.50/lb. 10 lbs. $15.00
Direct labor $6.00/hr. 2 hours 12.00
Variable overhead $10.00/hr. 2 hours 20.00
Fixed Overhead1 $8.00/hr. 2 hours 16.00
$63.00
Other Operating Data for Period:
Units produced 20,000 units
210,000 pounds purchased @ $1.55 per pound; 205,000 lbs. used
Direct labor costs $39,000 hours @ $6.10 per hour
Variable overhead $410,000
1Fixed overhead $300,000; Rate = ($310,000/38,750 hrs)
PPT 9 -13
Variance Analysis: General Description
Actual Quantity of Input at Actual Price
AQ x AP
Actual Quantity ofInput at Standard Price
AQ x SP
Standard Quantity ofInput at Standard Price
SQ x SP
PriceVariance
AQ x (AP - SP)
UsageVariance
SP x (AQ - SQ)
BudgetVariance
(AQ x AP) - (SQ x SP)
PPT 9 -14
Variance Investigation
Variances are investigated if two conditions are met:
1. The variance is material
2. The benefits of investigating and taking correctiveaction are greater than its costs
PPT 9 -15
Control Limits: Standard + Allowable Deviation
Investigating occurs for values outside the allowable range.
Example: Assume the allowable deviation may be the lesser of $8,000 or 10% of the standard. Suppose the standard is $50,000 and the actual deviation from standard is $6,000. Will the variance be investigated.
Answer: Yes. Ten percent of standard is $5,000. Since $6,000 is larger than the allowable deviation, an investigation will take place.
PPT 9 -16
Material Variances
Formula Approach:
MPV = (AP - SP)AQ MUV = (AQ - SQ)SP
= ($1.55-$1.50)210,000 = (205,000 - 200,000)$1.50
= $10,500 U = $7,500U
Diagram Approach:
AQ x AP AQ x SP AQ x SP SQ x SP
210,000 x $1.55 210,000 x $1.50 205,000 x $1.50 200,000 x $1.50
MPV = $10,500U MUV = $7,500U
Flexible Budget Variance = $18,000U
Responsibility: Responsibility:
Purchasing Manufacturing
SQ = 20,000 units x 10 lbs per unit
PPT 9 -17
Labor Variances
Formula Approach:
LRV = (AR - SR)AH LEV = (AH - SH)SR
= ($6.10 - $6.00)39,000 = (39,000 - 40,000)$6.00
= $3,900 U = $6,000 F
Diagram Approach:
AH x AR AH x SR SH x SR 39,000 x $6.10 39,000 x $6.00 40,000 x $6.00
LRV = $3,900 U LEV = $6,000 U
Flexible Budget Variance = $2,100 F
Responsibility: Responsibility:
Human Resources Manufacturing
SQ = 20,000 units x 2 hrs. per unit
PPT 9 -18
Variable Overhead Variances
Formula Approach:
OSV = (AVOR - SVOR)AH OEV = (AH - SH)SVOR
= $410,000 - ($10 X 39,000 hrs) = (39,000 - 40,000)$10.00
= $20,000 U = $10,000 F
Diagram Approach: AH x AVOR AH x SVOR SH x SVOR
$410,000 39,000 x $10.00 40,000 x $10.00
OSV = $20,000 U OEV = $10,000 F
Flexible Budget Variance = $10,000 U
Responsibility: Responsibility:
Manufacturing Manufacturing
SQ = 20,000 units x 2 hrs. per unit
PPT 9 -19
Fixed Overhead VariancesActual Overhead Budgeted Overhead Applied Overhead
$300,000 $310,000 SOR x SH($8 x40,000)
OSV = $10,000F OVV = 10,000F Responsibility: Responsibility:
Manufacturing Difficult to Assess
Alternative Approach for Computing Overhead Volume Variance
Planned level 38,750 hrs.
Applied level (SOR) 40,000 hrs.
Over 1,250 hrs.
x $8
Overhead Volume Variance $10,000 F
======
PPT 9 -20
Accounting for Variances
Journal Entry for Purchase of Direct Materials
Materials (AQ x SP) 315,000
MPV (AP - SP)AQ 10,500
Accounts Payable (AQ x AP) 325,500
Rule: Unfavorable variances are debited and favorable variances
are credited.
PPT 9 -21
Accounting for Variances (continued)
Recording the Issuance of Materials to Production
Work in Process (SQ x SP) 300,000
MUV [(AQ - SQ)SP] 7,500
Materials (AQ x SP) 307,500
AQ = Actual quantity used in production
PPT 9 -22
Accounting for Variances (continued)
Recording the Direct Labor Costs
Work in Process (SH x SR) 240,000
LEV [(AH - SH) SR] 3,900
Accrued Payroll (AH x AR) 237,900
LRV [(AR - SR) AH] 6,000
PPT 9 -23
Accounting for Variances (continued)
Recording Variable Overhead
Work in Process (SQ x SP) 400,000
Manufacturing Applied (SQ x SP) 400,000
Manufacturing Overhead (Actual Cost) 410,000
Various Accounts 410,000
PPT 9 -24
Accounting for Variances (continued)
Recording Fixed Overhead
Work in Process (SQ x SP) 320,000
Manufacturing Overhead Applied 320,000
Manufacturing Overhead (Actual Cost) 300,000
Various Accounts 300,000
PPT 9 -25
Accounting for Variances (continued)
Recording Overhead Variances and Closing the Overhead Accounts
Manufacturing Overhead Applied (Variable) 400,000
Manufacturing Overhead Applied (Fixed) 320,000
OSV (Variable) 20,000
Manufacturing Overhead (Variable) 410,000
Manufacturing Overhead (Fixed) 300,000
OEV 10,000
OSV (Fixed) 10,000
PVV 10,000
PPT 9 -26
Accounting for Variances (continued)
Disposition of Variances
OEV 20,000
OSV (Fixed) 10,000
PVV 10,000
OSV (Fixed) 10,000
Cost of Goods Sold 30,000
PPT 9 -27
End of Chapter 9