Upload
himani-aggarwal
View
88
Download
2
Tags:
Embed Size (px)
Citation preview
Standard costingStandard costingvariance analysisvariance analysis
kaizen costingkaizen costing
Chapter 16
StandardsStandards
≠ Predetermined amount for what should Predetermined amount for what should happenhappen
≠ Quantity standardQuantity standard
≠ Quantity of the resource that should be Quantity of the resource that should be consumedconsumed
≠ Cost standardCost standard
≠ Cost per unit that should be paid for the resourceCost per unit that should be paid for the resource
≠ Provides a context for evaluating actual Provides a context for evaluating actual amountsamounts
StandardsStandards
≠ AdvantagesAdvantages
≠ Provides a context for evaluating actual Provides a context for evaluating actual amountsamounts
≠ Standard costs do not fluctuateStandard costs do not fluctuate
≠ Simplified accountingSimplified accounting
≠ Less expensive than actual costingLess expensive than actual costing
Setting standardsSetting standards
≠ Quantity standardsQuantity standards
≠ How much should be consumed?How much should be consumed?
≠ Product/process analysisProduct/process analysis
≠ Allowance for normal, unavoidable Allowance for normal, unavoidable inefficienciesinefficiencies
≠Historical dataHistorical data
≠ Is it still relevant?Is it still relevant?
Setting standardsSetting standards
≠ Cost standardsCost standards
≠ What should a unit of the resource cost?What should a unit of the resource cost?
≠ Normal qualityNormal quality
≠ Normal quantityNormal quantity
≠ Regular supplierRegular supplier
≠ Same shipping methodSame shipping method
≠ Etc.Etc.
Setting standardsSetting standards
≠ Other issuesOther issues
≠ What is normal?What is normal?
≠ Practical or perfection?Practical or perfection?
≠Who determines the standard?Who determines the standard?
≠Who is most familiar with the usage?Who is most familiar with the usage?
≠Who is most familiar with the cost?Who is most familiar with the cost?
Variance analysis
≠ Comparison of standard to actual results
≠ Quantity
≠Material quantity variance
≠ Labor efficiency variance
≠ Cost
≠Material cost variance
≠ Labor rate variance
Variance analysis
≠ Quantity variance formula
≠ Standard price * (actual – standard quantity)
≠Notice what is in the parentheses
≠ Cost variance formula
≠ Actual quantity * (actual – standard cost)
≠Notice what is in the parentheses
≠ I pay for the actual amount I purchase
Variance analysis
≠ Favorable or unfavorable?
≠ Favorable if actual is less than standard
≠ Implies efficiency or cost savings
≠ Unfavorable if actual is greater than standard
≠ Implies waste or excessive cost
≠ Does not mean “good” or “bad”
≠Any variance is a deviation from what was supposed to happen
Variance analysis
≠ Responsibility
≠Why did the variance occur?
≠Usage issue
≠ Efficiency or inefficiency
≠Quality issue
≠Different material or labor mix
≠Quantity issue
≠Discount or surcharge
Variance analysis
Standard quantity per finished unit 12 Standard cost per unit 3.80$
Actual output (finished units) 500
Actual quantity used 5,942 Actual cost per unit 3.75$
Variance analysis
Quantity variance
= 3.80$ * ( 5,942 - ( 500 * 12 ))
= 220.40$ Favorable
Price variance
= 5,942 *( 3.75$ - 3.80 )
= 297.10$ Favorable
Variance analysis
Standard hours per finished unit 2 Standard rate per hour 12.40$
Actual output (finished units) 500
Actual hours used 1,085 Total actual labor cost 13,237$
Variance analysis
Quantity variance
=
=
Price variance
=
=
Variance analysis
≠ Now what?
≠ Investigation of variances
≠ Variance size
≠Cost/benefit of analysis
≠Offsetting variances
≠Controllability
≠ Interactions and tradeoffs
≠Recurring variances
Variance analysis≠ Criticisms
≠ Variances can be too aggregated
≠Work best in stable, mass production environment
≠ Focus on cost minimization, not qualitative issues
≠ Greater automation reduces variances
≠ Standards are often relevant for only a short time
Standard cost accountingStandard cost accounting
≠ Use of standard costs reduces period-to-period Use of standard costs reduces period-to-period fluctuationsfluctuations
≠ Standard costs are debited to inventory and Standard costs are debited to inventory and CofGS accountsCofGS accounts
≠ Variance is the difference between the debit to Variance is the difference between the debit to inventory and the creditinventory and the credit
≠ Variances are closed to CofGS at end of periodVariances are closed to CofGS at end of period
≠ Favorable variances decrease CoGSFavorable variances decrease CoGS
≠ Unfavorable variances increase CofGSUnfavorable variances increase CofGS
Kaizen costingKaizen costing
≠ Form of continuous improvementForm of continuous improvement
≠ ProcessProcess
≠ Cost reduction goal is establishedCost reduction goal is established
≠ Actual costs are compared to goalActual costs are compared to goal
≠ Actual cost achieved by year end becomes Actual cost achieved by year end becomes the base for next year’s reduction targetthe base for next year’s reduction target