Cost management accounting and control 6e by hansen mowen guan chapter 09

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan Chapter Standard Costing: A Functional-Based Control Approach COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning Cengage Learning and South-Western are trademarks used herein under license Study 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 Compute overhead variances three different ways, and explain overhead accounting Calculate mix and yield variances for direct materials and direct labor 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 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 Developing Unit Input Standards • Usage of standard costing systems – Cost management – Planning and control – Decision making and product costing Developing Unit Input Standards Standard Cost Sheets Variance Analysis and Accounting: Direct Materials and Direct Labor Total budget variance = (AP  AQ) – (SP  SQ) Variance Analysis and Accounting: Direct Materials and Direct Labor Variance Analysis and Accounting: Direct Materials and Direct Labor Accounting for the Direct Materials Price and Usage Variances 10 Variance Analysis: Overhead Costs 21 Variance Analysis: Overhead Costs 22 Variance Analysis: Overhead Costs 23 Variance Analysis: Overhead Costs Accounting for Overhead Variances 24 Variance Analysis: Overhead Costs Accounting for Overhead Variances (continued) 25 Variance Analysis: Overhead Costs 26 Variance Analysis: Overhead Costs 27 Mix and Yield Variances: Materials and Labor Standard Mix Information: Direct Materials Yield: 120 lbs Yield ratio: 0.75 (120 / 160) Standard cost of yield (SPy): $0.80 per pound ($96 / 120 pounds of yield) 28 Mix and Yield Variances: Materials and Labor Malcom Nut Company produces a batch of 1,600 pounds and produces the following actual results: 29 Mix and Yield Variances: Materials and Labor Mix Variance = Σ(AQi – SMi)SPi 30 Mix and Yield Variances: Materials and Labor Direct Materials Yield Variance Yield variance = (Standard yield – Actual yield) Spy Standard yield = Yield ratio × Total actual inputs Yield variance = (1,200 – 1,300)$0.80 = $80 F 31 Mix and Yield Variances: Materials and Labor Standard Mix Information: Direct Labor Yield: 120 lbs Yield ratio: 24 or 2400% (120 / 5) Standard cost of yield (SPy): $0.45 per pound ($54 / 120 pounds of yield) 32 Mix and Yield Variances: Materials and Labor *uses 50 hours as the base 33 Mix and Yield Variances: Materials and Labor Direct Labor Yield Variance Yield variance = (Standard yield – Actual yield)Spy = [(24 × 50) – 1,300]$0.45 = (1,200 – 1,300)$0.45 = $45 F 34 COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan End Chapter COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning Cengage Learning and South-Western are trademarks used herein under license 35 ... Usage of standard costing systems – Cost management – Planning and control – Decision making and product costing Developing Unit Input Standards Standard Cost Sheets Variance Analysis and Accounting: ... 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... 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