STANDARD COSTING Setting Standard and Analyzing Variances

Pertemuan 3, 4 dan 5

Matakuliah : <<AKUNTANSI BIAYA II>>Tahun : <<2009>>

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LEARNING OBJECTIVE

•Define Standard Cost and explain how standard are used.•Explain how standard are set.•Compute Standard Cost of actual or equivalent unit produced.•Compute Standard Cost variances for Materials, Labor and Factory Overhead (FOH).•Define Standard Cost variances and state how their causes can be determined.

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DEFINITION

• Standard Cost is the predetermined cost of manufacturing a single unit or a specific quantity of during a specific period.

• Standard Cost is the planned cost of product under current or anticipated operating conditions.

• Component : physical standard and price standard• A Standard is like a norm.

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USEFULNESS of Standard Cost

• Establishing budgets• Controlling costs by motivating employees and

measuring operating efficiencies.• Simplifying costing procedures and expediting

cost reports.• Assigning costs to materials, work in process, and

finished goods inventories.• Establishing contract bids and setting sales prices.

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SETTING Standards• Calculating a standard cost requires physical

standards.• Two types of physical standards are basic and current.• Basic standard = as a yardstick, expected versus

actual • Current Standards are of three types :• Expected Actual Standard.• Normal Standard.• Theoretical Standard.

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SETTING Standard

• Material and Labor standards generally are based on normal, current condition, allowing for expected changes in prices and reflecting desire efficiency.

• Overhead standards actually are based on normal operating conditions, normal volume, and desired efficiency.

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The SUCCESS of Standard

• Depend on the reliability, accuracy, and acceptance of the standards.

• Depend on human behavior.• Must be realistic, can be achieved.• Can increase employee motivation to work harder.• Standards usually are computed for a 6- or 12 month

period, although a longer period sometime is used.

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STANDARD COST CARD• Once standards are set, a standard cost card should

be prepared for each product, showing the itemized cost of each kind of materials and component part, labor operation, and overhead cost for the product.

• A master standard cost card can be a paper document or electronic record. Either way, the master standard cost card for each product should be supported by individual records that indicated how the standard were determined.

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DETERMINING Standard Cost

• Setting Material Standard Cost • = Price Standard x Quantity Standard• Price Standard = Price Purchases + Freight +

Receiving Handling – Purchase Discount• Quantity Standard = Material Requirement +

Allowance for waste and spoilage + Allowance for rejects.

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DETERMINING Standard Cost

• Setting Labor Standard Cost • = Rate Standard x Direct Labor Hour Standard• Rate Standard = Basic Wage Rate + Employee

Taxes (10%x Basic) + Fringe Benefit (30% x Basic)• DLH Standard = Basic Labor Time + Allowance for

Breaks and Personal Needs + Allowance for cleanup and machine downtime + Allowance for reject.

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DETERMINING Standard Cost Variance

• Differences between Standard Cost to Actual Cost is named as variance.

• Two Standards are developed for direct materials costs-a material price standard and a material quantity or usage standard.

• Because carrying inventory is costly, inventory buildup also can be reported as an unfavorable variance and inventory reduction as a favorable variance.

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MATERIAL STANDARDS AND VARIANCES

• Material Purchase Price Variances • = (Actual Price/unit-Standard Price/unit) x Actual

Quantity Purchase (AQP).• Material Price Usage Variances• = (Actual Price/unit-Standard Price/unit) x Actual Quantity Used (AQU)• Material Inventory Variances• = (AQP-AQU) x Standard Price/unit

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LABOR STANDARDS AND VARIANCES

• Labor Rate Variance • = (Actual Rate/hour-Standard Rate/hour) x

Actual Hours Worked (AHW).• Labor Efficiency Variances• = (AHW-SHA) x Standard Rate per hour

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FOH Standards and Variances

• Standard FOH Rate = Total FOH/Direct Labor Hours • Variable FOH Rate = Total Variable FOH/Direct Labor Hours• Fixed FOH Rate = Total Fixed FOH/Direct Labor Hours

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Two-Variance Method• Controllable Variance• = Actual FOH – [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH]

• Volume Variance• = [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH] – (Standard Hours x Standard FOH Rate)

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Three-Variance Method• Spending Variance = Actual FOH – [( Actual

Hours x Variable FOH Rate) + Budgeted Fixed FOH]• Variable Efficiency Variance = [( Actual Hours x

Variable FOH Rate) + Budgeted Fixed FOH] - [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH].

• Volume Variance = [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH] – (Standard Hours x Standard FOH Rate).

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Mix Variance

• Mix Variance is a variance representing the differences between the standard cost of formula materials and the standard cost the material actually used can be calculated.

• Mix Variance is the result of mixing basic materials in a ratio that differs from standard material specifications.

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Yield Variance

• Yield Variance as the amount of product manufactured from a given amount of materials.

• Yield Variance is the result of obtaining a yield different from what would be expected from actual input.

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CAUSES of Variances

• Material Variance : purchasing uncertainly, fortunate buy, unexpected inflation, an excess or shortage of quantity available in the market, etc.

• Labor variance : inefficiency labor, pilferage, or theft, badly worn or new machine, etc.

• FOH Variance : production inefficiency, capacity problem, etc.

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Alternative Three-Variance Method

• Spending Variance = Actual FOH – [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH]

• Idle Capacity Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] – [Actual Hours x FOH rate].

• Efficiency Variable = [Actual Hours x FOH rate] – [Standard Hours x FOH Rate].

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Four-Variance Method

• Spending Variance = Actual FOH – [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH]

• Variable Efficiency Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] - [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH].

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Four-Variance Method

• Fixed Efficiency Variance = [Actual Hours Worked – Standard Hours] x

Fixed FOH Rate. Idle Capacity Variance = [( Actual Hours x

Variable FOH Rate) + Budgeted Fixed FOH] – [Actual Hours x FOH rate].

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CONCLUSION

• Setting Standards and how to use standards.• Computed Variance and Analyzing Variances.• Variance : Material, Labor and FOH• Mix and Yield Variance• Causes of Variance, and control to Variance