Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn

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Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn 0 000 7 7ع مقط ‎Standard Costing and‏ ‎Variance Analysis‏ 

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ie. ۰ 5 ۲ 56 ل ‎material, labor, and overhead‏ * List the documents that are associated with standard cost systems and describe the information that those documents provide * Calculate and record material, labor, and overhead variances 

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ie. ۰ 5 ٠ Explain why standard cost systems 3126 560 * Contrast the traditional labor and overhead elements to a single conversion element * (Appendix) Explain how multiple material and labor categories affect 

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ie. ۰ 5 * Standard costs are budgeted costs to - manufacture a single unit of product, or - perform a single service * To develop standards identify ۱ ‏طقني ردعمرز عتوطها ممه‎ 65, and prices - overhead types and behavior 

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* Materials used 2 - Quantity - Quality -Cost ° From - Product specifications, observation, - Bill of materials + Balance cost, quality, and projected sales price 

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ie. ۰ 5 ان 195 = ‎Production, setup, cleanup, and rework‏ * ‎Quantity‏ - او00 - ‎Include wages, payroll taxes, and fringe‏ * مقع موط ‎From‏ * - Time and motion studies, industrial Bua studies 

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ie. ۰ 5 * Variable and fixed manufacturing overhead انامه گه اعع1 0مافصتاو۲ ۰ ¢ Estimated costs * Predetermined factory overhead application rates 

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* Calculate Material Price Variance at - point of purchase, or - when materials used 

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ie. ۰ 5 * Caused by price differences - managers have little control over 2۵5 * Caused by shrinkage or waste - managers should be held accountable 

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ie. ۰ 5 * Calculate variance for each component * Caused by price differences * May reflect mismanagement of resources 

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ie. ۰ ° Measures capacity utilization * Caused by producing at a level ‏ا ا واي لاك انان‎ used to compute the predetermined overhead rate * Also called the noncontrollable 2۱-06 

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ie. ۰ 5 * Clerical efficiency * Motivation * Planning * Controlling - variance analysis * Decision making * Performance evaluation 

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¢ Appropriateness ¢ Attainability - Expected standards - Practical standards - Ideal standards 

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ie. ۰ 5 ° How are standards set for material, labor, and overhead? ° How is variance analysis used for control and performance evaluation? * Why are labor and overhead elements sometimes combined into a single conversion element? 

Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn Chapter 7 Standard Costing and Variance Analysis Learning Objectives (1 of 2) • Describe how standards are set for material, labor, and overhead • List the documents that are associated with standard cost systems and describe the information that those documents provide • Calculate and record material, labor, and overhead variances Learning Objectives (2 of 2) • Explain why standard cost systems are used • Contrast the traditional labor and overhead elements to a single conversion element • (Appendix) Explain how multiple material and labor categories affect variances Standards • Standard costs are budgeted costs to – manufacture a single unit of product, or – perform a single service • To develop standards identify – material and labor types, quantities, and prices – overhead types and behavior Material Standards • Materials used – Types – Quantity – Quality – Cost • From – Product specifications, observation, inquiry – Bill of materials • Balance cost, quality, and projected sales price Labor Standards • Labor used – Types • Production, setup, cleanup, and rework – Quantity – Cost • Include wages, payroll taxes, and fringe benefits • From – Time and motion studies, industrial engineering studies – Operations flow document Overhead Standards • Variable and fixed manufacturing overhead • Estimated level of activity • Estimated costs • Predetermined factory overhead application rates Total Variance AP x AQ Inputs Total Variance SP x SQ Outputs AP = actual cost/price per unit of materials or hours of labor AQ = actual quantity of materials or hours of labor SP =standard cost/price per unit of materials or hours of labor SQ =standard quantity of materials or hours of labor Material Price Variance (MPV) AP x AQ SP x AQ SP x SQ MPV Total Variance What was paid * (AP - SP) x AQ Favorable or unfavorable * What should have been paid Material Price Variance • Calculate Material Price Variance at – point of purchase, or – when materials used Material Quantity Variance (MQV) AP x AQ SP x AQ SP x SQ MQV What was used * Total Variance (AQ - SQ) x SP Favorable or unfavorable * What should have been used for level of output Labor Rate Variance (LRV) AP x AQ SP x AQ SP x SQ LRV Total Variance What was paid * (AP - SP) x AQ Favorable or unfavorable * What should have been paid Labor Efficiency Variance (LEV) AP x AQ SP x AQ SP x SQ LEV What was used * Total Variance (AQ - SQ) x SP Favorable or unfavorable * What should have been used for level of output Variable Overhead Variances Actual VOH Actual For actual hours used Budgeted VOH Applied VOH SP x AQ SP x SQ VOH Spending Variance VOH Efficiency Variance Total VOH Variance What should have been used for level of output VOH Spending Variance • Caused by price differences – managers have little control over prices • Caused by shrinkage or waste – managers should be held accountable Fixed Overhead Variances Actual FOH Budgeted FOH Applied FOH SP x SQ Constant Amount FOH Spending Variance FOH Volume Variance Total FOH Variance What should have been used for level of output FOH Spending Variance • Calculate variance for each component • Caused by price differences • May reflect mismanagement of resources FOH Volume Variance • Measures capacity utilization • Caused by producing at a level that differs from the capacity level used to compute the predetermined overhead rate • Also called the noncontrollable variance Four Variance Approach Actual OH Budgeted OH based on Actual Inputs based on Standard Quantity Standard OH SP x SQ VOH & VOH FOH Efficiency Volume Spending Variance Variance Variances Total OH Variance Applied Overhead Why Use Standard Cost Systems • Clerical efficiency • Motivation • Planning • Controlling - variance analysis • Decision making • Performance evaluation Setting Standards • Appropriateness • Attainability – Expected standards – Practical standards – Ideal standards Questions • How are standards set for material, labor, and overhead? • How is variance analysis used for control and performance evaluation? • Why are labor and overhead elements sometimes combined into a single conversion element?