Kế toán, kiểm toán - Chapter 10: Standard costs and variances

Standard Costs and VariancesChapter 10McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Standard CostsStandards are benchmarks or “norms” formeasuring performance. In managerial accounting,two types of standards are commonly used.Quantity standardsspecify how much of aninput should be used tomake a product orprovide a service.Price standardsspecify how muchshould be paid foreach unit of theinput.Examples: Firestone, Sears, McDonald’s, hospitals, construction, and manufacturing companies.Standard CostsDirectMaterialDeviations from standards deemed significantare brought to the attention of management, apractice known as management by exception.Type of Product CostAmountDirectLaborManufacturingOverheadStandardVariance Analysis CycleSetting Standard CostsShould we useideal standards that require employees towork at 100 percent peak efficiency?EngineerManagerial Accountant I recommend using practical standards that are currently attainable with reasonable and efficient effort.Setting Direct Materials Standards Standard Priceper UnitSummarized in a Bill of Materials.Final, deliveredcost of materials,net of discounts.Standard Quantityper UnitSetting Direct Labor Standards Use time and motion studies foreach labor operation.Standard Hoursper UnitOften a singlerate is used that reflectsthe mix of wages earned.Standard Rateper HourSetting Variable Manufacturing Overhead Standards The rate is the variable portion of the predetermined overhead rate.PriceStandardThe quantity is the activity in the allocation base for predetermined overhead.QuantityStandardA General Model for Variance AnalysisVariance AnalysisPrice VarianceDifference betweenactual price and standard priceQuantity VarianceDifference betweenactual quantity andstandard quantityQuantity and Price StandardsQuantity and price standards are determined separately for two reasons: The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used. The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production. Variance AnalysisMaterials price varianceLabor rate varianceVOH rate varianceMaterials quantity varianceLabor efficiency varianceVOH efficiency varianceA General Model for Variance AnalysisQuantity VariancePrice VarianceA General Model for Variance AnalysisActual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.Quantity Variance(2) – (1)Price Variance(3) – (2)(1)Standard QuantityAllowed for Actual Output,at Standard Price(SQ × SP)(2)Actual Quantityof Input,at Standard Price(AQ × SP)(3)Actual Quantityof Input,at Actual Price (AQ × AP)Spending Variance(3) – (1)A General Model for Variance Analysis Standard quantity is the standard quantity allowed for the actual output of the period.Quantity Variance(2) – (1)Price Variance(3) – (2)(1)Standard QuantityAllowed for Actual Output,at Standard Price(SQ × SP)(2)Actual Quantityof Input,at Standard Price(AQ × SP)(3)Actual Quantityof Input,at Actual Price (AQ × AP)Spending Variance(3) – (1)A General Model for Variance Analysis Actual price is the amount actuallypaid for the input used.Quantity Variance(2) – (1)Price Variance(3) – (2)(1)Standard QuantityAllowed for Actual Output,at Standard Price(SQ × SP)(2)Actual Quantityof Input,at Standard Price(AQ × SP)(3)Actual Quantityof Input,at Actual Price (AQ × AP)Spending Variance(3) – (1)A General Model for Variance Analysis Quantity Variance(2) – (1)Price Variance(3) – (2)(1)Standard QuantityAllowed for Actual Output,at Standard Price(SQ × SP)(2)Actual Quantityof Input,at Standard Price(AQ × SP)(3)Actual Quantityof Input,at Actual Price (AQ × AP)Spending Variance(3) – (1)Standard price is the amount that shouldhave been paid for the input used.Materials Price VarianceMaterials Quantity VarianceProduction ManagerPurchasing ManagerThe standard price is used to compute the quantity varianceso that the production manager is not held responsible forthe purchasing manager’s performance.Responsibility for Materials VariancesResponsibility for Labor VariancesProduction ManagerProduction managers areusually held accountablefor labor variancesbecause they caninfluence the:Mix of skill levelsassigned to work tasks. Level of employee motivation.Quality of production supervision.Quality of training provided to employees.Advantages of Standard CostsManagement byexceptionAdvantagesPromotes economy and efficiencySimplifiedbookkeepingEnhances responsibilityaccountingPotentialProblemsEmphasis onnegative mayimpact morale.Emphasizing standardsmay exclude otherimportant objectives.Favorablevariances maybe misinterpreted.Continuous improvement maybe more importantthan meeting standards.Standard costreports maynot be timely.Invalid assumptionsabout the relationshipbetween laborcost and output.Potential Problems with Standard CostsFPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FRDH × FRFixed Overhead Volume VarianceVolume varianceFPOHR × (DH – SH)=FixedOverheadAppliedActualFixedOverheadBudgetedFixedOverheadVolumevarianceBudget varianceFixed Overhead Budget VarianceBudgetvarianceBudgetedfixedoverheadActualfixedoverhead=–FixedOverheadAppliedActualFixedOverheadBudgetedFixedOverheadReconciling Overhead Variances and Underapplied or Overapplied OverheadIn a standardcost system:Favorablevariances are equivalentto overapplied overhead.The sum of the overhead variancesequals the under- or overappliedoverhead cost for the period.Cost Flows in a Standard Cost SystemInventories are recorded at standard cost.Variances are recorded as follows:Favorable variances are credits, representing savings in production costs.Unfavorable variances are debits, representing excess production costs.Standard cost variances are usually closed out to cost of goods sold.Unfavorable variances increase cost of goods sold.Favorable variances decrease cost of goods sold.End of Chapter 10