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MANAGEMENT
PowerPoint Presentation by ACCOUNTING
Gail B. Wright
Professor Emeritus of Accounting 8th EDITION
Bryant University
BY
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
HANSEN & MOWEN
9 STANDARD COSTING
1
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
1. Tell how unit standards are set; why
standard costing systems are adopted.
2. State the purpose of a standard cost sheet.
3. Describe basic concepts underlying
variance analysis & explain how they are
used for control.
Continued
2
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
4. Compute materials & labor variances;
explain how they are used for control.
5. Calculate variable & fixed overhead
variances & give their definitions .
6. Prepare journal entries for variances
(Appendix).
3
LO 1
QUANTITY
QUANTITY STANDARDS:
STANDARDS:
Definition
Definition
4
LO 1
PRICE
PRICE STANDARDS:
STANDARDS: Definition
Definition
5
LO 1
Quantity
Quantity standards come from
experience, studies, & personnel.
Price
Price standards come from
operations, purchasing, personnel,
& accounting.
6
LO 1
7
LO 1
8
LO 2
STANDARD
STANDARD COST
COST PER
PER UNIT:
UNIT:
Definition
Definition
9
LO 3
TOTAL
TOTAL BUDGET
BUDGET VARIANCE:
VARIANCE:
Definition
Definition
10
LO 3
The
The difference
difference between
between actual
actual &
&
planned
planned can
can be
be favorable
favorable (actual
(actual
price
price or
or usage
usage << standard)
standard) or
or
unfavorable
unfavorable (actual
(actual price
price or
or usage
usage
>> standard).
standard). Does
Does not
not mean
mean good
good or
or
bad!
bad!
11
LO 3
12
LO 2
EXHIBIT 9-2
13
LO 3
Total Variance
= (AP X AQ) – (SP X SQ)
= Actual price x Actual quantity
– Standard Price x Standard Quantity
14
LO 3
15
LO 4
MATERIALS VARIANCES
Decompose total
materials variance
into price & usage
variances.
EXHIBIT 9-6
16
LO 4
17
LO 4
MUV
= (AQ X SP) – (SQ X SP)
= (AQ – SQ)SP
= (780,000 – 873,000) $0.006
= $ 558 F
18
LO 4
LRV
= (AH X AR) – (AH X SR)
= (AR – SR)AH
= ($7.35 - $7.00) 360
= $ 126 U
19
LO 4
20
LO 5
21
LO 5
VARIABLE OVERHEAD
SPENDING VARIANCE
Variable
Variable overhead
overhead spending
spending variance
variance
arises
arises because
because prices
prices change.
change. ItIt
includes
includes things
things such
such as
as indirect
indirect
materials,
materials, indirect
indirect labor,
labor, electricity
electricity
maintenance,
maintenance, etc.
etc. Increase
Increase oror decrease
decrease
in
in these
these items
items is
is beyond
beyond control
control of
of
managers.
managers.
22
LO 5
Efficiency Variance
= (AH – SH)SVOR
= (400 – 378.3) $3.85
= $ 84 U
23
LO 5
EXHIBIT 9-11
24
LO 5
Fixed
Fixed overhead
overhead spending
spending variance
variance is is the
the
difference
difference between
between actual
actual and
and
budgeted
budgeted fixed
fixed overhead.
overhead. ItIt includes
includes
things
things such
such as
as salaries,
salaries, depreciation,
depreciation,
taxes,
taxes, and
and insurance.
insurance. Increase
Increase oror
decrease
decrease in
in these
these items
items is
is beyond
beyond
control
control of
of managers.
managers.
25
LO 5
Volume Variance
= Budgeted – Applied fixed overhead
= $479,970 - $687,473
= $62,497 U
26
CHAPTER 9
THE
THE END
END
27