8 - 1 StandardStandard/Budget AdvantageAdvantage of Standard Costs StandardStandard Setting Direct...
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8 - 1 Standard / Budget Advantage of Standard Costs Standard Setting Direct Mater ials-Direct Labor Var Manufacturin g Overhead Var. Reporting Variances I n come Statement Next Slide Previo us Slide End End Show Show Managerial Accounting Second Edition Weygandt / Kieso / Kimmel ELS
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Transcript of 8 - 1 StandardStandard/Budget AdvantageAdvantage of Standard Costs StandardStandard Setting Direct...
8 - 1
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
NextSlide
PreviousSlide
EndEndShowShow
Managerial AccountingSecond EditionWeygandt / Kieso / Kimmel
ELS
8 - 2
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
NextSlide
PreviousSlide
EndEndShowShow
Performance Evaluation Through Standard Costs
8 - 3
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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EndEndShowShow
Standards• Are common in business• Those imposed by government are
regulations– Fair Labor Standards Act– Equal Employment Opportunity
• May extend to personnel matters– Employee absenteeism– Ethical codes of conduct– Quality control standards– Standard costs for goods and services
8 - 4
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Standard Costs vs Budgets
A standard is a unit amount.
A budget is a total amount.
Illustration 8-1
8 - 6
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Setting Standard Costs Is Difficult
Requires input from all persons who have responsibility for costs and quantities.
• Purchasing agents
• Product managers
• Quality control engineers
• Production supervisors
8 - 7
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Ideal Standards
Standards based on the optimum level of performance under perfect operating conditions.
8 - 8
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Normal Standards
Standards based on an efficient level of performance that are attainable under expected operating conditions.
8 - 9
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Normal Standards...
Should be rigorous but attainable.
8 - 10
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Materials Price Standard
The cost per unit of direct materials that should be incurred, including amounts for related costs such as receiving, storing, handling.
Unit PricePurchase price, net of discounts $2.70Freight .20Receiving and handling .10Standard direct materials price per pound $3.00
Illustration 8-2
8 - 11
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Materials Quantity Standard
The quantity of direct material that should be used per unit of finished goods.
Quantity Item (Pounds)Required materials 3.5Allowance for waste .4Allowance for spoilage .1Standard direct materials quantity per unit 4.0
Illustration 8-3
8 - 12
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Materials StandardIllustration 8-3
• Is the standard direct materials price times the standard direct materials quantity.
• For Xonic the standard direct materials cost per gallon is:
$12.00 ($3.00 x 4.0 pounds).
8 - 13
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Labor Price Standard
The rate per hour that should be incurred for direct labor, including allowances for unavoidable wastes and normal spoilage.
Item PriceHourly wage rate $7.50COLA .25Payroll taxes .75Fringe benefits 1.50Standard direct labor rate per pound $10.00
Illustration 8-4
8 - 14
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Labor Quantity Standard
The time that should be required to make one unit of a product.
Illustration 8-5
Quantity Item (Hours)Actual production time 1.5Rest periods and cleanup .2Setup and downtime .3Standard direct labor hours per unit 2.0
8 - 15
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Direct Labor StandardIllustration 8-3
• Is the standard direct labor rate times the standard direct labor hours.
• For Xonic the standard direct labor cost per gallon is
$20.00 ($10.00 x 2.0 hours).
8 - 16
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Standard Hours Allowed
The hours that should have been worked for the units produced.
With standard costs, manufacturing overhead costs are applied to work in process on the basis of standard hours allowed.
8 - 17
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Standard Predetermined Overhead Rate
An overhead rate determined by dividing budgeted overhead costs by an expected standard activity index.
8 - 18
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Manufacturing OverheadIllustration 8-6
Budgeted Standard Overhead RateOverhead Direct per Direct
Costs Amount Labor Hours = Labor Hour Variable $ 79,200 26,400 $3.00 Fixed 52,800 26,400 2.00 Total $132,000 26,400 $5.00
8 - 19
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Standard Cost per GallonIllustration 8-7
A standard cost card is prepared for each product.
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Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Variances
The difference between total actual costs and total standard costs.
TotalVariance
TotalVariance
TotalMaterialsVariance
TotalMaterialsVariance
MaterialsPrice
Variance
MaterialsPrice
Variance
MaterialsQuantityVariance
MaterialsQuantityVariance
TotalLabor
Variance
TotalLabor
Variance
LaborPrice
Variance
LaborPrice
Variance
LaborQuantityVariance
LaborQuantityVariance
TotalOverheadVariance
TotalOverheadVariance
OverheadControllable
Variance
OverheadControllable
Variance
OverheadVolume
Variance
OverheadVolume
Variance
= = +
= = +
= = +
Illustration 8-10
Various Relationships
8 - 22
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Total Materials Variance
The difference between the actual quantity times the actual price and the standard quantity times the standard price of materials.
8 - 23
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Materials Price VarianceThe difference between the
actual quantity times the actual price and the actual quantity times the standard price for material.
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Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Materials Quantity VarianceThe difference between the actual
quantity times the standard price and the standard quantity times the standard price for materials.
8 - 25
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Total Labor Variance
The difference between actual hours times the actual rate and standard hours times the standard rate for labor.
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Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Labor Price Variance
The difference between the actual hours times the actual rate and the actual hours times the standard rate for labor.
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Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Labor Quantity Variance
The difference between the actual hours times the standard rate and the standard hours times the standard rate for labor.
8 - 28
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Overhead Controllable Variance
The difference between actual overhead incurred and overhead budgeted for the standard hours allowed.
8 - 29
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Overhead Volume Variance
The difference between overhead budgeted for the standard hours allowed and the overhead applied.
8 - 30
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Total Overhead Variance
The difference between actual overhead costs and overhead costs applied to work done.
8 - 31
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Reporting VariancesIllustration 8-30
Xonic, Inc. Variance Report - Purchasing Department
For the Week June 8, 2002
Type of Quantity Actual Standard Price
Materials Purchased Price Price Variance Explanation x 100 4,200 lbs. $3.10 $3.00 $420 U Rush order
x 142 1,200 units 2.75 2.80 60 F Quantity discount
x 85 600 doz. 5.20 5.10 60 U Regular supplier
on strike Total price variance $420 U
8 - 32
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Statement Presentation of Variances
Sales $60,000Cost of goods sold (at standard) 42,000Gross profit (at standard) 18,000Variances Materials price 420 Materials quantity 600 Labor price (420) Labor quantity 1,000 Overhead controllable 500 Overhead volume 400 Total variance unfavorable 2,500Gross profit (actual) 15,500Selling and administrative expenses 3,000Net income $12,500
Sales $60,000Cost of goods sold (at standard) 42,000Gross profit (at standard) 18,000Variances Materials price 420 Materials quantity 600 Labor price (420) Labor quantity 1,000 Overhead controllable 500 Overhead volume 400 Total variance unfavorable 2,500Gross profit (actual) 15,500Selling and administrative expenses 3,000Net income $12,500
Xonic, Inc.Income Statement
For the Month Ended June 30, 2002
Illustration 8-31
8 - 33
Standard/Budget
Advantage of Standard Costs
Standard Setting
Direct Materials-Direct Labor Var
Manufacturing Overhead Var.
Reporting Variances
Income Statement
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Copyright © 2002, John Wiley & Sons, Inc. All rights reserved.Reproduction or translation of this work beyond that permitted inSection 117 of the 1976 United States Copyright Act without theexpress written permission of the copyright owner is unlawful.Request for further information should be addressed to thePermissions Department, John Wiley & Sons, Inc. The purchasermay make back-up copies for his/her own use only and not fordistribution or resale. The Publisher assumes no responsibilityfor errors, omissions, or damages, caused by the use of theseprograms or from the use of the information contained herein.
