McGraw-Hill©The McGraw-Hill Companies, Inc., 2004 1 Chapter 14 Local Area Networks: Ethernet.
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Transcript of 14-1 CHAPTER 14 McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Cost...
14-1
CHAPTER 14
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Cost Analysis for Planning
14-2
Decision Making
Strategic, Operational,and Financial (Planning)
Planning and Control Cycle
Executing operational
activities (Managing)
Performance analysis: Plans vs.
actual results (Controlling)
L O 1
Implement Plans
Rev
isit
Pla
ns
Data collection and Performance Feedback
14-3
Control Steps taken by
management to ensure that
objectives are attained.
Planning Developing objectives for
acquisitionand use of resources.
A budget is a comprehensive financialplan for achieving the financial and
operational goals of an organization.
A budget is a comprehensive financialplan for achieving the financial and
operational goals of an organization.
BudgetingL O 1
14-4
Benefits
Enhanced managerialresponsibility
Assignment of decisionmaking responsibilities
Performanceevaluation
Coordinationof activities
BudgetingL O 2
14-5
Time consuming but enhances employeemotivation and acceptance of goals.
Time consuming but enhances employeemotivation and acceptance of goals.
S u p erviso r S u p erviso r
M id d leM an ag em en t
S u p erviso r S u p erviso r
M id d leM an ag em en t
Top M an ag em en t
Participative Budgeting
Flow of Budget Data
L O 2
14-6
Operating BudgetOperating Budget
The annual operating budget may be divided into quarterly
or monthly budgets.
The Budget Time Frame
2008 2009 2010 2011
L O 3
Operating BudgetOperating Budget Operating BudgetOperating Budget
14-7
2009 20092008 2010
Continuous or Perpetual Budget
This budget is usually a four-quarterbudget that rolls forward one quarteras the current quarter is completed.
The Budget Time FrameL O 3
Budget for2009 byquarters
Quarter I
Quarter II
Quarter III
Quarter IV
Budget for last 3
quarters of 2009 and
first quarterof 2010
Budget for 2010 by quarters
2009 2009Quarter
IV
Budget for last 2
quarters of 2009and
first 2 quartersof 2010
Budget for last quarter of 2009 and
first 3 quartersof 2010
14-8
ORDirect
MaterialsBudget
Production Budget
(Manufacturer)
Operating ExpenseBudget
DirectLabor
Budget
ManufacturingOverhead
Budget
Sales Budget
The Budgeting Process
Cost of GoodsSold Budget
Budgeted Balance Sheet
Budgeted Income Statement
Budgeted Statement of Cash Flows
L O 4
Purchases Budget
(Merchandiser)
14-9
SalesBudget
EstimatedUnit Sales
EstimatedUnit Price
Analysis of economic and market conditions
+Forecasts of customer needs provided by marketing
personnel
Sales BudgetL O 4
14-10
That’s enough talkingabout budgets.
Show me an example!
Preparing the Master BudgetL O 4
14-11
Jones Co. is preparing budgets for the quarter ending March 31 for its one product that sells for $25 per unit.
Budgeted sales for the next four months are:
Jan 10,000 units @ $25 = $250,000Feb 12,000 units @ $25 = $300,000Mar 15,000 units @ $25 = $375,000Apr 11,000 units @ $25 = $275,000
The Sales Budget
April is needed for March ending inventory computations.
Preparing the Master BudgetL O 4
14-12
Inventory Flows
Beginningbalance
Beginningbalance AvailableAvailable
Endingbalance
Endingbalance
AdditionsAdditions+ =
WithdrawalsWithdrawals
_
=
The basic inventory flow model is usedfor production and purchases budgets.The basic inventory flow model is usedfor production and purchases budgets.
L O 5
14-13
Sales Budget
Complete
d
ProductionBudget
The Production BudgetL O 5
14-14
Let’s prepare the production budget. Finished goods ending inventory should be 1.4
times the next month’s budgeted sales in units.
14,000 units were on hand December 31.
Sales forecast for January is 10,000 units.
The Production BudgetL O 5
14-15
Production must be adequate to meet budgeted sales and to provide sufficient
ending inventory.
Production must be adequate to meet budgeted sales and to provide sufficient
ending inventory.
Budgeted product sales in units
+ Desired product units in ending inventory
= Total product units needed
– Product units in beginning inventory
= Product units to produce
The Production BudgetL O 5
14-16
The Production Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Desired ending inventoryTotal units neededLess beginning inventoryUnits to produce
January February MarchBudgeted unit sales 10,000 12,000 15,000 Desired ending inventoryTotal units neededLess beginning inventoryUnits to produce
We start with the sales budgetWe start with the sales budget
L O 5
14-17
The Production Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Desired ending inventory 16,800 21,000 15,400 Total units neededLess beginning inventoryUnits to produce
January February MarchBudgeted unit sales 10,000 12,000 15,000 Desired ending inventory 16,800 21,000 15,400 Total units neededLess beginning inventoryUnits to produce
1.4 × 12,000 1.4 × 11,000
1.4 × 15,000
L O 5
14-18
January February MarchBudgeted unit sales 10,000 12,000 15,000 Desired ending inventory 16,800 21,000 15,400 Total units needed 26,800 33,000 30,400 Less beginning inventory 14,000 16,800 21,000 Units to produce 12,800 16,200 9,400
The Production Budget
Beginning inventory each month is theprevious month’s ending inventory
Beginning inventory each month is theprevious month’s ending inventory
L O 5
14-19
RawMaterials
PurchasesBudget
ProductionBudget
Complete
d
Raw Materials Purchases BudgetL O 5
14-20
The materials purchases budget is based on production quantity and desired materials
inventory levels.
The materials purchases budget is based on production quantity and desired materials
inventory levels.
Units to produce × Material needed per unit = Material needed for units to produce+ Desired units of material in ending
inventory= Total units of material needed– Units of material in beginning inventory= Units of material to purchase
Raw Materials Purchases BudgetL O 5
14-21
Three pounds of materials are needed for each unit produced. Each pound of material costs $0.90.
Jones wants to have materials on hand at the end of each month equal to 50 percent of the
following month’s production needs.
The materials inventory on December 31is 19,200 pounds.
Three pounds of materials are needed for each unit produced. Each pound of material costs $0.90.
Jones wants to have materials on hand at the end of each month equal to 50 percent of the
following month’s production needs.
The materials inventory on December 31is 19,200 pounds.
Raw Materials Purchases BudgetL O 5
14-22
Raw Materials Purchases Budget
January February MarchUnits to produce 12,800 16,200 9,400 Pounds per unit 3 3 3 Material needs (lbs.) 38,400 48,600 28,200 Desired ending inventoryTotal material needs (lbs.)Less beginning inventoryMaterial purchases (lbs.)
L O 5
14-23
Raw Materials Purchases Budget
January February MarchUnits to produce 12,800 16,200 9,400 Pounds per unit 3 3 3 Material needs (lbs.) 38,400 48,600 28,200 Desired ending inventory 24,300 14,100 17,000 Total material needs (lbs.) 62,700 62,700 45,200 Less beginning inventoryMaterial purchases (lbs.) 0.5 × 48,600
0.5 × 28,200
Ending inventory for March will not be known until the April production budget is established.
Assume this number is 17,000 pounds.
L O 5
14-24
Raw Materials Purchases Budget
January February MarchUnits to produce 12,800 16,200 9,400 Pounds per unit 3 3 3 Material needs (lbs.) 38,400 48,600 28,200 Desired ending inventory 24,300 14,100 17,000 Total material needs (lbs.) 62,700 62,700 45,200 Less beginning inventory 19,200 24,300 14,100 Material purchases (lbs.) 43,500 38,400 31,100
Beginning inventory each month is theprevious month’s ending inventory
Beginning inventory each month is theprevious month’s ending inventory
L O 5
14-25
DirectLabor
Budget
RawMaterials
PurchasesBudget
Complete
d
Direct Labor BudgetL O 5
14-26
Each unit produced requires 6 minutes (0.10 hours) of direct labor. Jones employs 23
persons for 40 hours each week at a rate of $10 per hour. Any extra hours needed are
obtained by hiring temporary workers also at $10 per hour.
Direct Labor BudgetL O 5
14-27
Direct Labor Budget
January February MarchUnits to produce 12,800 16,200 9,400 Hours per unit 0.10 0.10 0.10 Total hours required 1,280 1,620 940 Wage rate per hourDirect labor cost
L O 5
14-28
January February MarchUnits to produce 12,800 16,200 9,400 Hours per unit 0.10 0.10 0.10 Total hours required 1,280 1,620 940 Wage rate per hour 10$ 10$ 10$ Direct labor cost 12,800$ 16,200$ 9,400$
Direct Labor BudgetL O 5
14-29
DirectLabor
Budget
Complete
d
ManufacturingOverhead
Budget
The Production BudgetL O 5
14-30
Variable manufacturing overhead is $1 per unit produced and fixed manufacturing overhead is
$50,000 per month.
Manufacturing Overhead BudgetL O 5
14-31
January February MarchUnits to produce 12,800 16,200 9,400 Variable overhead rate 1.00$ 1.00$ 1.00$ Variable overhead cost 12,800$ 16,200$ 9,400$ Fixed overhead 50,000 50,000 50,000 Total mfg. overhead cost 62,800$ 66,200$ 59,400$
Manufacturing Overhead BudgetL O 5
14-32
Sellingand
AdministrativeExpenseBudget
Selling and Administrative(S&A) Expense Budget
Complete
d
ManufacturingOverhead
Budget
L O 6
14-33
Selling expense budgets contain both variable and fixed items.
Variable items: shipping costs and sales commissions.
Fixed items: advertising and sales salaries.
Administrative expense budgets contain mostly fixed items.Executive salaries and depreciation on company
offices.
Selling expense budgets contain both variable and fixed items.
Variable items: shipping costs and sales commissions.
Fixed items: advertising and sales salaries.
Administrative expense budgets contain mostly fixed items.Executive salaries and depreciation on company
offices.
Selling and Administrative(S&A) Expense Budget
L O 6
14-34
Variable selling and administrative expenses are $.50 per unit sold and fixed selling and administrative expenses are $30,000 per
month.
Fixed selling and administrative expenses include $10,000 in depreciation which does not
require a cash outflow.
Selling and Administrative(S&A) Expense Budget
L O 6
14-35
Selling and Administrative(S&A) Expense Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Variable S&A per unit 0.50$ 0.50$ 0.50$ Variable S&A expense 5,000$ 6,000$ 7,500$ Fixed S&A expense 30,000 30,000 30,000 Total S&A expense 35,000$ 36,000$ 37,500$ Deduct depreciationS&A expense - cash
L O 6
14-36
January February MarchBudgeted unit sales 10,000 12,000 15,000 Variable S&A per unit 0.50$ 0.50$ 0.50$ Variable S&A expense 5,000$ 6,000$ 7,500$ Fixed S&A expense 30,000 30,000 30,000 Total S&A expense 35,000$ 36,000$ 37,500$ Deduct depreciation 10,000 10,000 10,000 S&A expense - cash 25,000$ 26,000$ 27,500$
Selling and Administrative(S&A) Expense Budget
L O 6
14-37
BudgetedIncome
Statement
S & ABudget
Complete
d
Budgeted Income StatementL O 7
14-38
Budgeted Income Statement
Jones CompanyBudgeted Income Statement
For the Three Months Ended March 31
Sales (37,000 units @ $25) 925,000$
L O 7
14-39
Jones CompanyBudgeted Income Statement
For the Three Months Ended March 31
Sales (37,000 units @ $25) 925,000$ Cost of goods sold (37,000 @ $8.61) 318,570 Gross margin 606,430$
Computation of unit cost follows
Budgeted Income StatementL O 7
14-40
Production costs per unit Quantity Cost Total Direct materials 3.00 lbs. 0.90$ 2.70$ Direct labor 0.10 hrs. 10.00$ 1.00 Manufacturing overhead 4.91 Total unit cost 8.61$
Total mfg. OH for quarter $188,400 Total labor hours required 38,400 units
= $4.91 per unit (rounded)
From production and overhead budgets
Units Produced Mfg. OHJanuary 12,800 62,800$ February 16,200 66,200 March 9,400 59,400 Total 38,400 188,400$
Budgeted Income StatementL O 7
Manufacturing overhead is
applied based on number of units
produced.
14-41
Jones CompanyBudgeted Income Statement
For the Three Months Ended March 31
Sales (37,000 units @ $25) 925,000$ Cost of goods sold (37,000 @ $8.61) 318,570 Gross margin 606,430$ Selling and administrative expenses 108,500 Operating income 497,930$
From S&A Expense Budget
January 35,000$ February 36,000 March 37,500 Total 108,500$
Budgeted Income StatementL O 7
14-42
Jones CompanyBudgeted Income Statement
For the Three Months Ended March 31
Sales (37,000 units @ $25) 925,000$ Cost of goods sold (37,000 @ $8.61) 318,570 Gross margin 606,430$ Selling and administrative expenses 108,500 Operating income 497,930$ Interest expense 50 Net income 497,880$
Budgeted Income StatementL O 7
14-43
Complete
d
Budgeted Income StatementL O 7
Budgeted Income
StatementCash
Budget
14-44
All sales are on account.
Jones’ collection pattern is:
70 percent collected in month of sale
29 percent collected in month after sale
1 percent will be uncollectible
Accounts receivable on December 31 is $30,000, all of which is collectible.
All sales are on account.
Jones’ collection pattern is:
70 percent collected in month of sale
29 percent collected in month after sale
1 percent will be uncollectible
Accounts receivable on December 31 is $30,000, all of which is collectible.
Cash Receipts BudgetL O 8
14-45
Cash Receipts Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Price per unit 25$ 25$ 25$ Budgeted sales revenue 250,000$ 300,000$ 375,000$
Receipts from December sales 30,000$ Receipts from January salesReceipts from February salesReceipts from March salesTotal cash receipts 30,000$
L O 8
14-46
Cash Receipts Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Price per unit 25$ 25$ 25$ Budgeted sales revenue 250,000$ 300,000$ 375,000$
Receipts from December sales 30,000$ Receipts from January sales 175,000 72,500$ Receipts from February salesReceipts from March salesTotal cash receipts 205,000$
January: .70 × $250,000 = $175,000 and .29 × $250,000 = $72,500
L O 8
14-47
Cash Receipts Budget
January February MarchBudgeted unit sales 10,000 12,000 15,000 Price per unit 25$ 25$ 25$ Budgeted sales revenue 250,000$ 300,000$ 375,000$
Receipts from December sales 30,000$ Receipts from January sales 175,000 72,500$ Receipts from February sales 210,000 87,000$ Receipts from March salesTotal cash receipts 205,000$ 282,500$
January: .70 × $250,000 = $175,000 and .29 × $250,000 = $72,500 February: .70 × $300,000 = $210,000 and .29 × $300,000 = $87,000
L O 8
14-48
January February MarchBudgeted unit sales 10,000 12,000 15,000 Price per unit 25$ 25$ 25$ Budgeted sales revenue 250,000$ 300,000$ 375,000$
Receipts from December sales 30,000$ Receipts from January sales 175,000 72,500$ Receipts from February sales 210,000 87,000$ Receipts from March sales 262,500 Total cash receipts 205,000$ 282,500$ 349,500$
January: .70 × $250,000 = $175,000 and .29 × $250,000 = $72,500 February: .70 × $300,000 = $210,000 and .29 × $300,000 = $87,000 March: .70 × $375,000 = $262,500
Cash Receipts BudgetL O 8
14-49
Materials used in production cost $.90per pound. One-half of a month’s
purchases are paid for in the month of purchase; the other half is paid for in the
following month.
No discount terms are available.
The accounts payable balance onDecember 31 is $18,000.
Materials used in production cost $.90per pound. One-half of a month’s
purchases are paid for in the month of purchase; the other half is paid for in the
following month.
No discount terms are available.
The accounts payable balance onDecember 31 is $18,000.
Cash Payments for MaterialsL O 8
14-50
Cash Payments for Materials
January February MarchMaterial purchases (lbs.) 43,500 38,400 31,100 Cost per pound 0.90$ 0.90$ 0.90$ Total cost 39,150$ 34,560$ 27,990$
Payables from December 18,000$ January purchasesFebruary purchasesMarch purchasesTotal payments in month
L O 8
14-51
Cash Payments for Materials
January February MarchMaterial purchases (lbs.) 43,500 38,400 31,100 Cost per pound 0.90$ 0.90$ 0.90$ Total cost 39,150$ 34,560$ 27,990$
Payables from December 18,000$ January purchases 19,575 19,575 February purchasesMarch purchasesTotal payments in month 37,575$
½ × $39,150 = $19,575
L O 8
14-52
Cash Payments for Materials
January February MarchMaterial purchases (lbs.) 43,500 38,400 31,100 Cost per pound 0.90$ 0.90$ 0.90$ Total cost 39,150$ 34,560$ 27,990$
Payables from December 18,000$ January purchases 19,575 19,575 February purchases 17,280 17,280 March purchasesTotal payments in month 37,575$ 36,855$
½ × $39,150 = $19,575½ × $34,560 = $17,280
L O 8
14-53
January February MarchMaterial purchases (lbs.) 43,500 38,400 31,100 Cost per pound 0.90$ 0.90$ 0.90$ Total cost 39,150$ 34,560$ 27,990$
Payables from December 18,000$ January purchases 19,575 19,575 February purchases 17,280 17,280 March purchases 13,995 Total payments in month 37,575$ 36,855$ 31,275$
½ × $39,150 = $19,575½ × $34,560 = $17,280½ × $27,990 = $13,995
Cash Payments for MaterialsL O 8
14-54
With just a bit more information we will
be able to prepare a comprehensive cash
budget.
Comprehensive Cash BudgetL O 8
14-55
Jones Company:Has a $100,000 line of credit at its bank, with a zero
balance on January 1.Maintains a $20,000 minimum cash balance.Borrows at the beginning of a month and repays at
the end of a month.Pays interest at 12 percent when a principal payment
is made.Pays a $77,000 cash dividend in January.Purchases equipment costing $118,245 in February
and $196,540 in March.Has a $25,175 cash balance on January 1.
Jones Company:Has a $100,000 line of credit at its bank, with a zero
balance on January 1.Maintains a $20,000 minimum cash balance.Borrows at the beginning of a month and repays at
the end of a month.Pays interest at 12 percent when a principal payment
is made.Pays a $77,000 cash dividend in January.Purchases equipment costing $118,245 in February
and $196,540 in March.Has a $25,175 cash balance on January 1.
Comprehensive Cash BudgetL O 8
14-56
January February March
Beginning cash balance 25,175$ Cash receipts 205,000 282,500 349,500
Cash available 230,175$
Cash payments: Materials budget Labor budget Manufacturing OH budget S&A expense budget Equipment purchases Dividends
Total cash payments
Balance before financing
BorrowingPrincipal repaymentInterest
Ending cash balance
Comprehensive Cash BudgetL O 8
14-57
January February March
Beginning cash balance 25,175$ Cash receipts 205,000 282,500 349,500
Cash available 230,175$
Cash payments: Materials budget 37,575$ 36,855$ 31,275$ Labor budget 12,800 16,200 9,400 Manufacturing OH budget 62,800 66,200 59,400 S&A expense budget 25,000 26,000 27,500 Equipment purchases 0 118,245 196,540 Dividends 77,000 0 0
Total cash payments 215,175$ 263,500$ 324,115$
Balance before financing 15,000$
BorrowingPrincipal repaymentInterest
Ending cash balance
Comprehensive Cash BudgetL O 8
14-58
January February March
Beginning cash balance 25,175$ 20,000$ Cash receipts 205,000 282,500 349,500
Cash available 230,175$ 302,500$
Cash payments: Materials budget 37,575$ 36,855$ 31,275$ Labor budget 12,800 16,200 9,400 Manufacturing OH budget 62,800 66,200 59,400 S&A expense budget 25,000 26,000 27,500 Equipment purchases 0 118,245 196,540 Dividends 77,000 0 0
Total cash payments 215,175$ 263,500$ 324,115$
Balance before financing 15,000$ 39,000$
Borrowing 5,000 Principal repayment 0Interest 0
Ending cash balance 20,000$
Comprehensive Cash BudgetL O 8
14-59
January February March
Beginning cash balance 25,175$ 20,000$ 33,950$ Cash receipts 205,000 282,500 349,500
Cash available 230,175$ 302,500$ 383,450$
Cash payments: Materials budget 37,575$ 36,855$ 31,275$ Labor budget 12,800 16,200 9,400 Manufacturing OH budget 62,800 66,200 59,400 S&A expense budget 25,000 26,000 27,500 Equipment purchases 0 118,245 196,540 Dividends 77,000 0 0
Total cash payments 215,175$ 263,500$ 324,115$
Balance before financing 15,000$ 39,000$ 59,335$
Borrowing 5,000 0Principal repayment 0 (5,000) Interest 0 (50)
Ending cash balance 20,000$ 33,950$
Comprehensive Cash BudgetL O 8
$5,000 × .12 × 1/12 = $50
14-60
January February March
Beginning cash balance 25,175$ 20,000$ 33,950$ Cash receipts 205,000 282,500 349,500
Cash available 230,175$ 302,500$ 383,450$
Cash payments: Materials budget 37,575$ 36,855$ 31,275$ Labor budget 12,800 16,200 9,400 Manufacturing OH budget 62,800 66,200 59,400 S&A expense budget 25,000 26,000 27,500 Equipment purchases 0 118,245 196,540 Dividends 77,000 0 0
Total cash payments 215,175$ 263,500$ 324,115$
Balance before financing 15,000$ 39,000$ 59,335$
Borrowing 5,000 0 0Principal repayment 0 (5,000) Interest 0 (50)
Ending cash balance 20,000$ 33,950$ 59,335$
Comprehensive Cash BudgetL O 8
14-61
BudgetedBalance
Sheet
Complete
d
Cash Budget
Budgeted Balance SheetL O 7
14-62
Jones reports the following account balances on March 31, prior to preparing its budgeted
financial statements: Land - $50,000 Building (net) - $224,500 Equipment (net) - $350,000 Common stock - $300,000 Retained earnings - $205,604
Jones reports the following account balances on March 31, prior to preparing its budgeted
financial statements: Land - $50,000 Building (net) - $224,500 Equipment (net) - $350,000 Common stock - $300,000 Retained earnings - $205,604
Budgeted Balance SheetL O 7
14-63
Jones CompanyBudgeted Balance Sheet
March 31Current assets Cash 59,335$ Accounts receivable (net) 108,750 Raw materials inventory 15,300 Finished goods inventory 132,594
Total current assets 315,979$ Property and equipment Land 50,000$ Building (net) 224,500 Equipment (net) 350,000 Total property and equipment 624,500$
Total assets 940,479$
Liabilities and Equities Accounts payable 13,995$ Common stock 300,000 Retained earnings 626,484 Total liabilities and equities 940,479$
29% of Marchsales of $375,000
17,000 lbs. @ $.90 per lb.
50% of Junepurchases of $27,990
15,400 units@ $8.61
each
L O 7 Budgeted Balance Sheet
14-64
Jones CompanyBudgeted Balance Sheet
March 31Current assets Cash 59,335$ Accounts receivable (net) 108,750 Raw materials inventory 15,300 Finished goods inventory 132,594
Total current assets 315,979$ Property and equipment Land 50,000$ Building (net) 224,500 Equipment (net) 350,000 Total property and equipment 624,500$
Total assets 940,479$
Liabilities and Equities Accounts payable 13,995$ Common stock 300,000 Retained earnings 626,484 Total liabilities and equities 940,479$
L O 7 Budgeted Balance Sheet
Beginning balance 205,604$ Add: net income 497,880 Deduct: dividends (77,000) Ending balance 626,484$
14-65
Let’s change
topics.
Flexible BudgetingL O 9
14-66
Standard Costs are
Based on carefullypredetermined amounts.
Used for planning material, labor, and overhead requirements.
The expected levelof performance.
Benchmarks formeasuring performance.
Standard CostsL O 9
14-67
Are standards the same as budgets?
A standard is the expected cost for one
unit.
A budget is the expected cost for all
units.
Standard CostsL O 9
14-68
Accountants, engineers, personnel administrators, and production managers combine efforts to set standards
based on experience and expectations.
Developing StandardsL O 10
14-69
Should we useattainable standardsor ideal standards?
Engineer
Developing StandardsL O 10
14-70
Attainable standards should be set at levels that are currently
achievable with reasonable and efficient effort.Production
manager
Developing StandardsL O 10
14-71
I agree. Ideal standards, based on perfection,are unattainable and
discourage mostemployees.
Human ResourcesManager
Developing StandardsL O 10
14-72
Developing Standards
ManagerialAccountant
What aboutbasing standards on
past experience?
L O 10
14-73
Developing Standards
No. Past experience contains inefficiencies and provides little
incentive for improvement.Production
manager
L O 10
14-74
QuantityStandards
Use product design specifications.
PriceStandards
Final, deliveredcost of materials,net of discounts.
Costing Products withStandard Costs
L O 11
14-75
RateStandards
Use wage surveys and
labor contracts.
TimeStandards
Use time and motion studies for
each labor operation.
Costing Products withStandard Costs
L O 11
14-76
RateStandards
The rate is the variable portion of the
predetermined overhead rate.
ActivityStandards
The activity is the base used to calculate
the predetermined overhead.
Costing Products withStandard Costs
L O 11
14-77
Standard costs for a productmight look like this:
A A x BStandard Standard StandardQuantity Price Cost
Inputs or Hours or Rate per Unit
Raw materials 3.0 lbs. 4.00$ per lb. 12.00$ Direct labor 2.5 hours 14.00 per hour 35.00 Variable overhead 2.5 hours 3.00 per hour 7.50 Fixed overhead 2.5 hours 4.50 per hour 11.25 Total standard unit cost 65.75$
B
Costing Products withStandard Costs
L O 11
14-78
Other Uses of Standards
QualityControlQualityControl
InventoryControl
InventoryControl
MachineUsage
MachineUsage
ServiceLevels
ServiceLevels
SalesLevelsSalesLevels
SafetyGoalsSafetyGoals
TrainingLevels
TrainingLevels
L O 11
14-79
End of Chapter 14