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CHAPTER
Standard
Costing: A
Managerial
Control Tool
1.
2.
3.
4.
After
9 -2
After studyin
studyin
chapter,
you
chapter,
you
Objectives
Objectives
be
be able
able t
Tell how unit standards are set and why
standard costing systems are adapted.
State the purpose of a standard cost sheet.
Describe the basic concepts underlying
variance analysis, and explain when
variances should be investigated.
Compute the material and labor variances,
and explain how they are used for control.
Continued
Continued
9 -3
Objectives
Objectives
5. Calculate the variable and fixed overhead
variances, and give their definitions.
6. Appendix: Prepare journal entries for
materials and labor variances, and show how
to account for overhead variances.
9 -4
Cost
Cost control
control often
often means
means
the
the difference
difference between
between
success
success and
and failure.
failure.
9 -5
9 -6
Manufacturing Costs
Direct
Materials
Direct
Labor
Overhead
Actual
Actual
Actual
Actual
Actual
Budgeted
Standard
Standard
Standard
9 -7
18 oz.
2 oz.
1 oz.
0.01 oz.
1 bag.
$0.108
0.062
0.005
0.004
0.044
$0.223
9 -8
Description
Direct materials
Direct labor:
Inspectors
$7.000
Machine operators
10.000
Total direct labor
Overhead:
Variable overhead
3.850
Fixed overhead
32.050
Total overhead
Total standard unit cost
$0.223
0.0070 hr.
0.0008 hr.
$0.049
0.008
0.057
0.078 hr.
0.0078 hr.
$0.030
0.250
0.280
$0.560
9 -9
During
During the
the first
first week
week of
of March,
March, 100,000
100,000
packages
packages of
of corn
corn chips
chips are
are produced.
produced.
The
The standard
standard quantity
quantity of
of yellow
yellow corn
corn
meal
meal per
per package
package isis 18
18 ounces.
ounces.
9 -10
9 -11
2. SP x AQ
(Actual Quantity
of Input at
Standard Price)
Price Variance
(1-2)
3. SP x SQ
(Standard
Quantity of Input
at Standard Price)
Usage Variance
(2-3)
Budget
Variance (1-3)
9 -12
9 -13
Unfavorable
Unfavorable variances
variances
occur
occur whenever
wheneveractual
actual
prices
prices or
or usage
usage of
of inputs
inputs
are
are greater
greater than
than standard
standard
prices
prices or
or usage.
usage.
Favorable
Favorable variances
variances
occur
occur whenever
whenever the
the
opposite
opposite occurs.
occurs.
9 -14
Cost
x
x
x
$110,000
$100,000
x
x
$ 90,000
Time
9 -15
Variance
Variance Analysis:
Analysis: Materials
Materials and
and Labor
Labor
Actual production
Corn
Inspection labor
2,376.50
269.50 U
AQ x SP
780,000 x $.0.0060
$4,680
$702 U
Price Variance
SQ x SP
873,000 x $0.0060
$5,238
$558 F
Usage Variance
$144 U
Total Variance
9 -16
9 -17
Material
Material Price
Price Variance
Variance
The actual
The standard
quantity of
price per unit
material used
9 -18
Material
Material Price
Price Variance
Variance
MPV = (AP SP)AQ
= ($0.0069 $0.0060)780,000
= $0.0009 x 780,000
= $702 U
Percent
Percent of
of SP
SPxx SQ
SQ == $702/$4,680
$702/$4,680 == 15%
15%
9 -19
Direct
Direct Materials
Materials Usage
Usage Variance
Variance
9 -20
Direct
Direct Materials
Materials Usage
Usage Variance
Variance
MUV = (AQ SQ)SP
= (780,000 873,000)($0.006)
= 93,000 x $0.006
= $558 F
Percent of SQ x SP = $558/$5,238 = 10.7%
9 -21
Labor
Labor Rate
Rate Variances
Variances
9 -22
Labor
Labor Rate
Rate Variances
Variances
LRV = (AR SR)AH
= ($7.35 $7.00)360
= $0.35 x 360
= $126 U
Percent of SR x SH = $126/$2,520 = 5%
AH x SR
360 x $7.00
$2,520
$126 U
Rate Variance
SH x SR
339.5 x $7.00
$2,376.50
$143.50 U
Efficiency Variance
$269.50 U
Total Variance
9 -23
9 -24
Labor
Labor Efficiency
Efficiency Variances
Variances
9 -25
Labor
Labor Efficiency
Efficiency Variances
Variances
LEV = (AH SH)SR
= (360 339.5)$7
= 20.5 x $7
= $143.50 U
Percent of SH x SR = $143.50/$2,376.50 = 6%
9 -26
$3.85/DLH
$1,600
400
48,500
373.3
$1,456
Actual VO
$1,600
VO Rate x
Actual Hours
$1,540
$60 U
Spending
Variance
VO Rate x
Standard Hours
$1,456
$84 U
Efficiency Variance
$144 U
Total Variance
9 -27
9 -28
Variable
Variable Overhead
Overhead
Spending
Spending Variances
Variances
VOSV = (AVOR x AH) (SVOR x AH)
= (AVOR SVOR)AH
= ($4.00 $3.85)400
= $60 U
9 -29
Actual
Costs
Spending
Budget Variance
$3.00
$1,190
$1,200
$10 F
Electricity
0.78
385
312
73 U
Water
0.07
25
28
3 F
$3.85
$1,600
$1,540
$60 U
Gas
Total cost
9 -30
Actual
Cost
Formula Costs
Gas
Budget
for
Spending Standard Efficiency
Budget Variance Hours Variance
$3.00
$1,190
$1,200
$10 F
$1,135
$65 U
Electricity
0.78
385
312
73 U
295
17 U
Water
0.07
25
28
3 F
26
2U
$3.85
$1,600
$1,540
$60 U
$1,456
$84 U
Total cost
9 -31
9 -32
Budgeted FO
$749,970
Actual FO
$749,000
$970 F
Spending
Variance
Applied FO
$687,473
$62,497 U
Volume
Variance
$61,527 U
Total Variance
9 -33
9 -34
Actual
Costs
$530,000
Budgeted
Cost
Variance
$530,000 $ ----
159,370
159,970
600 F
50,500
50,000
500 U
9,130
10,000
870 F
$749,000
$749,970
$970 F
Volume Variance
9 -35
9 -36
Appendix:
Accounting for
Variances
9 -37
The
The actual
actual price
price isis $0.0069
$0.0069 per
per ounce
ounce of
of
corn
corn and
and standard
standard price
price isis $0.0060,
$0.0060, and
and
780,000
780,000 ounces
ounces of
of corn
corn are
are purchased.
purchased.
Materials Inventory
4 680 00
5 382 00
9 -38
During
During the
the period
period 780,000
780,000 ounces
ounces of
of corn
corn
isis placed
placed into
into production.
production. The
The
standard
standard quantity
quantity isis 873,000
873,000 ounces,
ounces,
and
and standard
standard price
price isis $0.006.
$0.006.
Work in Process
5 238 00
Material
Material Usage
UsageVariance
Variance
558 00
4 680 00
During
During the
the period
period the
the firm
firm has
has 360
360 actual
actual
inspection
inspection hours,
hours, while
while the
the standard
standard hours
hours
for
for the
the units
units produced
produced isis 339.5
339.5 hours.
hours. The
The
actual
actual rate
rate isis $7.35
$7.35 per
per hour
hour while
while the
the
standard
standard rate
rate isis $7.00
$7.00 per
per hour.
hour.
Work in Process
9 -39
2 376 00
2 646 00
Labor
LaborVariances
Variances
9 -40
At
At the
the end
end of
of the
the year,
year, the
the variances
variances for
for
materials
materials and
and labor
labor are
are usually
usually closed
closed to
to
Cost
Cost of
of Goods
Goods Sold.
Sold.
Cost of Goods Sold
971 50
Closing
ClosingVariances
Variances
702 00
143 50
126 00
9 -41
At
At the
the end
end of
of the
the year,
year, the
the variances
variances for
for
materials
materials and
and labor
labor are
are usually
usually closed
closed to
to
Cost
Cost of
of Goods
Goods Sold.
Sold.
Material Usage Variance
558 00
558 00
9 -42
Chapter Nine
The
The End
End
9 -43