STANDARD COSTING: A FUNCTIONAL-BASED CONTROL APPROACH CHAPTER © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CHAPTER OBJECTIVES Describe how unit input standards are developed, and explain why standard costing systems are adopted Explain the purpose of a standard cost sheet Compute and journalize the direct materials and direct labor variances, and explain how they are used for control © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CHAPTER OBJECTIVES Compute overhead variances three different ways, and explain overhead accounting Calculate mix and yield variances for direct materials and direct labor © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use DEVELOPING UNIT INPUT STANDARDS • Price Standards specify how much should be paid for the quantity of the input to be used • Quantity standards specify how much of the input should be used per unit of output • Unit standard cost is the product of these two standards Standard price × Standard Quantity (SP × SP) LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use DEVELOPING UNIT INPUT STANDARDS Establishing 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 LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use DEVELOPING UNIT INPUT STANDARDS Kaizen Standards •Continuous improvement standards •Reflect planned improvement and are a type of currently attainable standard •Have a cost reduction focus and because of their emphasis on continuous improvement, are constantly changing LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use DEVELOPING UNIT INPUT STANDARDS Kaizen Standards •Standards and Activity-Based Costing • An activity’s cost is determined by the amount of resources consumed by each activity • Standard consumption patterns are identified based on historical experience • Activity-based systems also use standards for control, where control is specifically defined as cost reduction • Activities are classified as either value-added or nonvalue-added LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use DEVELOPING UNIT INPUT STANDARDS Usage of Standard Costing Systems •Cost Management •Planning and Control •Decision Making and Product Costing LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.1—COST ASSIGNMENT APPROACHES LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.2—STANDARD COST SHEET FOR DELUXE STRAWBERRY FROZEN YOGURT LO-2 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.5—VARIABLE OVERHEAD SPENDING AND EFFICIENCY VARIANCES BY ITEM LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Fixed Overhead Spending Variance •Difference between the actual fixed overhead and the budgeted fixed overhead FOSV=AFOH − BFOH AFOH = Actual fixed overhead BFOH = Budgeted fixed overhead •If less (more) is spent on fixed overhead items than was budgeted, the spending variance is favorable (unfavorable) LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Fixed Overhead Volume Variance •Difference between budgeted fixed overhead and applied fixed overhead Volume variance = Budgeted fixed overhead – Applied fixed overhead LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Fixed Overhead Volume Variance •If actual production is less than budgeted production, the volume variance will be unfavorable •If actual production is more than budgeted production, the volume variance will be favorable •The difference is due solely to the differences in production or planned utilization of capacity LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.6—FIXED OVERHEAD SPENDING VARIANCE BY ITEM LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Accounting for Overhead Variances •To assign overhead to production Work in Process Variable Overhead Control Fixed Overhead Control LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Accounting for Overhead Variances •To recognize the incurrence of actual overhead Variable Overhead Control Fixed Overhead Control Various Accounts LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Accounting for Overhead Variances •To recognize the variances Fixed Overhead Control Variable Overhead Efficiency Variance Fixed Overhead Spending Variance Variable Overhead Control Variable Overhead Spending Variance Fixed Overhead Volume Variance LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use VARIANCE ANALYSIS: OVERHEAD COSTS Accounting for Overhead Variances •To close the variances to Cost of Goods Sold Fixed Overhead Volume Variance Cost of Goods Sold Cost of Goods Sold Variable Overhead Spending Variance Variable Overhead Efficiency Variance Fixed Overhead Spending Variance LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.7—TWO-VARIANCE ANALYSIS: HELADO COMPANY LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 9.8—THREE-VARIANCE ANALYSIS: HELADO COMPANY LO-4 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use MIX AND YIELD VARIANCES: MATERIALS AND LABOR • Mix variance: created whenever the actual mix of inputs differs from the standard mix • Yield variance: occurs whenever the actual yield (output) differs from the standard yield LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use MIX AND YIELD VARIANCES: MATERIALS AND LABOR Direct Materials Mix Variance •Difference in the standard cost of the actual mix of inputs use and the standard cost of the mix of inputs that should have been used •If relatively more of a more expensive input is used, the mix variance will be unfavorable •If relatively more of a less expensive input is used, the mix variance will be favorable Mix Variance = ∑ ( AQi − SMi)SPi LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use MIX AND YIELD VARIANCES: MATERIALS AND LABOR Direct Materials Yield Variance •Designed to show the extent to which the amount of input resulted in the expected amount of output Yield variance = (Standard yield – Actual yield) Spy where Standard yield = yield ratio × total actual inputs Yield ratio = total output/total input SPy = Standard cost of the yield LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use END OF CHAPTER © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ... be paid for the quantity of the input to be used • Quantity standards specify how much of the input should be used per unit of output • Unit standard cost is the product of these two standards... classroom use DEVELOPING UNIT INPUT STANDARDS Usage of Standard Costing Systems Cost Management •Planning and Control Decision Making and Product Costing LO-1 â 2014 Cengage Learning All Rights... STANDARD COST SHEETS • Standard costs are developed for direct materials, direct labor, and overhead used in producing a product or service • Total of these standard costs yields the standard cost