Professional Documents
Culture Documents
Chapter 9
Standard Costing: A Functional-
Based Control Approach
COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning. 1
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Study Objectives
1. Describe how unit input standards are developed, and
explain why standard costing systems are adopted.
2. Explain the purpose of a standard cost sheet.
3. Compute and journalize the direct materials and direct
labor variances, and explain how they are used for
control.
4. Compute overhead variances three different ways, and
explain overhead accounting.
5. Calculate mix and yield variances for direct materials
and direct labor.
2
Developing Unit Input Standards
• Unit standard cost is the product of
standard price and standard quantity
Standard Standard
Price Quantity
SP SQ
• Quantity standards specify how much of the
input should be used per unit of output
• Price standards specify how much should be
paid for the quantity of the input to be used
3
Developing Unit Input Standards
• Ideal standards demand maximum
efficiency and can be achieved only if
everything operates perfectly.
• Currently attainable standards can be
achieved under efficient operating
conditions.
• Kaizen standards reflect a planned
improvement and are a type of currently
attainable standard.
4
Developing Unit Input Standards
• Usage of standard costing systems
– Cost management
– Planning and control
– Decision making and product costing
5
Developing Unit Input Standards
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Standard Cost Sheets
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Variance Analysis and Accounting:
Direct Materials and Direct Labor
Total budget variance = (AP AQ) – (SP SQ)
9
Variance Analysis and Accounting:
Direct Materials and Direct Labor
Accounting for the Direct Materials Price and
Usage Variances
10
Variance Analysis and Accounting:
Direct Materials and Direct Labor
• Direct materials price variances can be
computed at the point
– when the direct materials are issued into
production OR
.– when the materials are purchased
• This method would require AQ to be defined as the
actual quantity purchased, rather than actual
quantity used)
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Variance Analysis and Accounting:
Direct Materials and Direct Labor
Direct materials usage variances should be computed as
direct materials are issued into production.
12
Variance Analysis and Accounting:
Direct Materials and Direct Labor
13
Variance Analysis and Accounting:
Direct Materials and Direct Labor
Accounting for the Direct Labor Rate
and Efficiency Variances
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Variance Analysis and Accounting:
Direct Materials and Direct Labor
• Investigating direct materials and labor
variances
– Because random variations around the standard are
expected, management should establish an
acceptable range of performance.
– The acceptable range is the standard, plus or minus
an allowable deviation.
• The upper control limit is the standard plus the allowable
deviation
• The lower control limit is the standard minus the allowable
deviation.
15
Variance Analysis and Accounting:
Direct Materials and Direct Labor
Disposition of Direct Materials and
Direct Labor Variances Immaterial
16
Variance Analysis and Accounting:
Direct Materials and Direct Labor
Disposition of Direct Materials and
Direct Labor Variances Material
18
Variable overhead rate (standard) $ 6.00 per DLH
Actual variable overhead cost $ 7,540
Actual hours worked: 1,300
Quarts of Delux Strawberry Frozen Yogurt produced:
120,000
Hours allowed for production: 0.01 x 120,000 = 1,200
Applied variable overhead : $ 6.00 x 1,200 = $ 7,200
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Variance Analysis: Overhead Costs
20
Variance Analysis: Overhead Costs
21
Variance Analysis: Overhead Costs
22
Variance Analysis: Overhead Costs
23
Budgeted fixed overhead $ 20,000
Expected activity (normal capacity):1,000 DLH;
Hours allowed to produce 100.000 quarts of
frozen yogurt (normal capacity of
production); standard hours: 0.01 hours
Standard fixed overhead rate: $ 20,000 / 1,000
DLH = $ 20
Actual production: 120,000 quarts
Actual fixed overhead cost $ 20,500
Standard hours allowed for actual production:
0.01 hours x 120,000 quarts = 1,200 DLH
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Variance Analysis: Overhead Costs
25
Variance Analysis: Overhead Costs
Accounting for Overhead Variances
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Variance Analysis: Overhead Costs
Accounting for Overhead Variances
(continued)
27
Variance Analysis: Overhead Costs
28
Variance Analysis: Overhead Costs
29
Mix and Yield Variances:
Materials and Labor
Standard Mix Information: Direct Materials
30
Mix and Yield Variances:
Materials and Labor
Malcom Nut Company processes a batch of 1,600
pounds and produces the following actual results:
Direct Actual
Materials Mix Percentages
Peanuts 1,120 lbs 70%
Almonds 480 lbs 30%
1,600 lbs 100%
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Mix and Yield Variances:
Materials and Labor
Mix Variance = Σ(AQi – SMi)SPi
Direct
Materials AQ SM AQ-SM SP (AQ-SM)SP
Peanuts 1,120 1,280 (160) $0.50 $ (80)
Almonds 480 320 160 $1.00 $ 160
Mix variance $ 80 U
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Mix and Yield Variances:
Materials and Labor
Direct Materials Yield Variance
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Mix and Yield Variances:
Materials and Labor
Standard Mix Information: Direct Labor
Labor Mix Standard
Type Mix Proportion SP Cost
Shelling 3 hrs 0.60 $8.00 $24.00
Mixing 2 hrs 0.40 $15.00 30.00
5 $54.00
34
Mix and Yield Variances:
Materials and Labor
Direct Mix
Labor Actual Percen-
Type Mix tages*
Shelling 20 hrs 40%
Mixing 30 hrs 60%
50 hrs 100%
End Chapter 9