ACC 202 Daphne Sanchez Lois Andersson. About: Who, What, When, Where, Why & How Identifying Cost...
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Transcript of ACC 202 Daphne Sanchez Lois Andersson. About: Who, What, When, Where, Why & How Identifying Cost...
STANDARD COSTING
“COW CREAM”
ACC 202Daphne SanchezLois Andersson
STANDARD COSTING About: Who, What, When, Where, Why &
How Identifying Cost Variance Computation Materials Cost Variance Labor Cost Variance Overhead Cost Variance Sales Variance
ABOUT STANDARD COSTING
Who: Can be used internally by all, though not always the preferred method.
What: Preset costs for delivering a product/service under normal conditions.
When: Establishing a budget.
Where: Within the organization in every department.
Why: It is especially useful when directed at controllable items, enabling top management to affect the actions of lower managers responsible for the company's revenue and cost.
How: Used to base against Actual Costs.
IDENTIFYING STANDARD COSTS
A comparison of standard costs to actual costs should help management identify unexpected differences. In order to accomplish this, a Fixed Budget (aka Standard) must first be created. Managers will then be able to assess the variance between the standard costs and the actual costs. This is necessary in order to seek out explanations as to why actual cost varied from the standard.
COST VARIANCE COMPUTATIONSCost Variance Computation- Simply stated, Cost Variance (CV) is the difference between Actual Cost (AC) and Standard Costs (SC).
Fixed and Variable costs need to be identified at the beginning of the process.
Favorable: When compared to the budget, the actual cost or revenue contributes to a higher income; actual revenue is higher than budgeted revenue, or actual cost is lower than budgeted cost.
Unfavorable: When compared to the budget the actual cost or revenue contributes to a lower income; actual revenue is lower than budgeted revenue, or actual cost is higher than budgeted cost.
AC = AQ x AP SC = SQ x SP CV = AC – SC
P. 796 GREEN BOOKCOW CREAM COMPANY
Fixed (Standard) Budget ReportFor Year Ended December 31, 2010
Sales (15,000 gallons ice cream) $ 200.00 $ 3,000,000.00
Cost of goods sold
Direct materials $ 975,000.00 V
Direct labor 225,000.00 V
Machinery repairs (variable cost) 60,000.00 V
Depreciation-Plant equipment 300,000.00 F
Utilities ($45,000 is variable) 195,000.00 V/F
Plant management salaries 200,000.00 F 1,955,000.00
Gross profit 1,045,000.00
Selling expenses
Packaging 75,000.00 V
Shipping 105,000.00 V
Sales salary (fixed annual amount) 250,000.00 F 430,000.00
General and administrative expense
Advertising expense 125,000.00 F
Salaries 241,000.00 F
Entertainment expense 90,000.00 F 456,000.00
Income from operations $ 159,000.00
CALCULATIONSDirect Materials: $975,000/15,000 Units = $65.00
Direct Labors: $225,000/15,000 Units = $15.00
Machinery Repairs: $60,000/15,000 Units = $4.00
Utilities: $45,000/15,000 Units = $3.00
Packaging: $75,000/15,000 Units = $5.00
Shipping: $105,000/15,000 Units = $7.00
Total Variable Cost: $99.00
Contribution* Margin= $101.00
(*amount being contributed toward fixed costs)
($200.00/unit cost (less) total variable cost $99.00)
COST VARIANCE COMPUTATIONS
Price Variances- difference between actual and budgeted revenue or costs caused by the difference between the actual price per unit and the budgeted price per unit. (PV)=(AQ x AP) - (AQ x SP)
Quantity Variance- difference between actual and budgeted revenue or costs caused by the difference between the actual number of units and the budgeted number of units. (QV) = (AQ x SP) - ( SQ x SP)
PROBLEM 28-2A (#2)
Prepare flexible budgets (see Exhibit 28.2) for the
company at sales volumes of 14,000 and
16,000 units.
COW CREAM COMPANYFixed Budget Report
For Year Ended December 31, 2010 Flexible Budget Flexible Budgets For Unit Sales of
: Variable
Amount/Gallon Fixed Amount 14,000 16,000
Sales (15,000 Gallons)
$ 200.00
$ 2,800,000.00
$ 3,200,000.00
Cost of Goods SoldVariable Costs
Direct materials
65.00
910,000.00
1,040,000.00
Direct Labor
15.00
210,000.00
240,000.00
Machinery repairs (Variable Cost)
4.00
56,000.00
64,000.00
Utilities ($45,000 is variable)
3.00
42,000.00
48,000.00
Packaging
5.00
70,000.00
80,000.00
Shipping
7.00
98,000.00
112,000.00
Total Variable Costs
99.00
1,386,000.00
1,584,000.00
Contribution Margian$
101.00 $
1,414,000.00 $
1,616,000.00 Fixed Variables
Depreciation-Plant Equipment
300,000.00
300,000.00
300,000.00
Plant Management Salaries
200,000.00
200,000.00
200,000.00
Sales Salary (Fixed annual amount)
250,000.00
250,000.00
250,000.00
Utilities ($45,000 is variable)
150,000.00
150,000.00
150,000.00
Advertising Expense
125,000.00
125,000.00
125,000.00
Salaries
241,000.00
241,000.00
241,000.00
Entertainment Expense
90,000.00
90,000.00
90,000.00
Total Fixed Costs$
1,356,000.00 $
1,356,000.00 $
1,356,000.00
Income from Operations $
58,000.00 $
260,000.00
PROBLEM 28-2A (#3)The company’s business conditions are improving. One possible result is a sales volume of approximately 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2010 budgeted amount of $159,000 if this level is reached without increasing capacity?
COW CREAM COMPANY
Flexible Budgets
Gallons for sale of:
Fixed Budget Report
For Year Ended December 31, 2010 Flexible Budget Actual Result Variances Variable
Amount/Gallon
Fixed Amount 18000 15000 3000
Sales (18,000 Gallons)
$ 200.00
$ 3,600,000.00
$ 3,000,000.00 F
$ 600,000.00
Cost of Goods Sold
Variable Costs
Direct materials
65.00
1,170,000.00
975,000.00 F
195,000.00
Direct Labor
15.00
270,000.00
225,000.00 F
45,000.00
Machinery repairs (Variable Cost)
4.00
72,000.00
60,000.00 F
12,000.00
Utilities ($45,000 is variable)
3.00
54,000.00
45,000.00 F 9,000.00
Packaging
5.00
90,000.00
75,000.00 F
15,000.00
Shipping
7.00
126,000.00
105,000.00 F
21,000.00
Total Variable Costs
99.00
1,782,000.00
1,485,000.00 F
297,000.00
Contribution Margian $ 101.00
$ 1,818,000.00
$ 1,515,000.00 F
$ 303,000.00
Fixed Variables
Depreciation-Plant Equipment
300,000.00
300,000.00
300,000.00
-
Plant Management Salaries
200,000.00
200,000.00
200,000.00
-
Sales Salary (Fixed annual amount)
250,000.00
250,000.00
250,000.00
-
Utilities ($45,000 is variable)
150,000.00
150,000.00
150,000.00
-
Advertising Expense
125,000.00
125,000.00
125,000.00
-
Salaries
241,000.00
241,000.00
241,000.00
-
Entertaiment Expense
90,000.00
90,000.00
90,000.00
-
Total Fixed Costs $
1,356,000.00 $
1,356,000.00 $
1,356,000.00
-
Income from Operations $
462,000.00 $
159,000.00 $
303,000.00
less: income from operations 2010
(159,000.00)
Increase in contribution margin $
303,000.00
PROBLEM 28-2A (#4)
An Unfavorable change in business is remotely possible; in this case, production and sales volume for 2010 could
fall to 12,000 units. How much income (or loss) from
operations would occur if sales volume falls to this
level?
COW CREAM COMPANY
Flexible Budgets Units for sale of:
Fixed Budget Report
For Year Ended December 31, 2010 Flexible Budget
Variable Amount/Gallon Fixed Amount 12,000
Sales (12,000 Gallons) $ 200.00 $ 2,400,000.00
Cost of Goods Sold
Variable Costs
Direct materials 65.00 780,000.00
Direct Labor 15.00 180,000.00
Machinery repairs (Variable Cost) 4.00 48,000.00
Utilities ($45,000 is variable) 3.00 36,000.00
Packaging 5.00 60,000.00
Shipping 7.00 84,000.00
Total Variable Costs 99.00 1,188,000.00
Contribution Margian $ 101.00 $ 1,212,000.00
Fixed Variables
Depreciation-Plant Equipment 300,000.00 300,000.00
Plant Management Salaries 200,000.00 200,000.00
Sales Salary (Fixed annual amount) 250,000.00 250,000.00
Utilities ($45,000 is variable) 150,000.00 150,000.00
Advertising Expense 125,000.00 125,000.00
Salaries 241,000.00 241,000.00
Entertaiment Expense 90,000.00 90,000.00
Total Fixed Costs $ 1,356,000.00 $ 1,356,000.00
Income from Operations $ (144,000.00)
MATERIAL, LABOR & OVERHEAD COST VARIANCE
Overhead Cost Variance- difference between the total overhead cost applied to products and the total overhead cost actually incurred.
Applied manufacturing overhead (ApMO) = Direct labor hours x rate per hourActual manufacturing overhead AcMO) = fixed costs + variable costs Overhead Cost Variance= ApMO - AcMO
JOURNAL ENTRIES
A debit balance in a variance account is always unfavorable—it shows that the total of actual costs is higher than the total of the expected standard costs. In other words, your company's profit will be $50 less than planned unless you take some action.
JOURNAL ENTRIES CONT’D
A credit to the variance account indicates that the actual cost is less than the standard cost. A price variance account with a credit balance is always Favorable.
STANDARD COSTING IS USER FRIENDLY
Ice cream parlor Hair Stylist Motorcycle Shops Any manufacturing company All individuals who want to budget
CONNECTIONS
http://cowcream.weebly.com/