Ch09 Guan Cm Aise Ppt

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COST MANAGEMENT

Guan Hansen Mowen

COPYRIGHT 2009 South-Western Publishing, a division of Cengage Learning.Cengage Learning and South-Western are trademarks used herein under license. 1

Chapter 9

Standard Costing: A Functional-Based Control Approach


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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 directlabor 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.


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Developing Unit Input Standards

Unit standard costis the product ofstandard price and standard quantity

Standard Standard

Price QuantitySP SQ

Quantity standardsspecify how much of the

input should be used per unit of output Price standardsspecify how much should be

paid for the quantity of the input to be used


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Ideal standardsdemand maximumefficiency and can be achieved only ifeverything operates perfectly.

Currently attainable standardscan beachieved under efficient operatingconditions.

Kaizen standardsreflect a plannedimprovement and are a type of currentlyattainable standard.


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Usage of standard costing systems

Cost management

Planning and control

Decision making and product costing


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Standard Cost Sheets


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Total budget variance = (AP AQ) (SP SQ)

Variance Analysis and Accounting:Direct Materials and Direct Labor


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Materials (SP AQ) 15,600

Direct Materials Price Variance (AP SP)AQ 3,900

Accounts Payable (AP AQ) 19,500

Work in Process (SQ SP) 15,600

Direct Materials Usage Variance (AQ SQ)SP 3,900Materials (AQ SP) 19,500

Accounting for the Direct Materials Price and

Usage Variances



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.


Direct materials price variances can becomputed at the point

when the direct materials are issued intoproduction OR

when the materials are purchased

This method would require AQ to be defined as the

actual quantity purchased, rather than actualquantity used)


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Direct materials usage variancesshould be computed asdirect materials are issued into production.



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Accounting for the Direct Labor Rate

and Efficiency Variances

Work in Process (SH SR) 2,400

Direct Labor Rate Variance (AR SR)AH 65

Direct Labor Efficiency Variance (AH SH)SR 200

Wages Payable (AH AR) 2,665



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Investigating direct materials and laborvariances

Because random variations around the standard are

expected, management should establish anacceptable range of performance.

The acceptable range is the standard, plus or minusan allowable deviation. The upper control limit is the standard plus the allowable

deviation

The lower control limit is the standard minus the allowabledeviation.


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Cost of Goods Sold 4,765

Direct Materials Price Variance 3,900Direct Materials Usage Variance 600

Direct Labor Rate Variance 65

Direct Labor Efficiency Variance 200

Disposition of Direct Materials and

Direct Labor Variances Immaterial



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Finished Goods 953Cost of Goods Sold 3,812

Direct Materials Price Variance 3,900

Direct Materials Usage Variance 600

Direct Labor Rate Variance 65

Direct Labor Efficiency Variance 200

Disposition of Direct Materials and

Direct Labor Variances Material

Prime Costs Percentage of Total

Work in Process $0 0%

Finished Goods 3,480 20

Cost of Goods Sold 13,920 80

Total $17,400 100%



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Variance Analysis: Overhead Costs


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Accounting for Overhead Variances

To recognize the incurrence of actual overhead:

Variable Overhead Control 7,540

Fixed Overhead Control 20,500

Miscellaneous Accounts 28,040

To recognize the variances:

Fixed Overhead Control 3,500

Variable Overhead Efficiency Variance 600

Fixed Overhead Spending Variance 500

Variable Overhead Control 340

Variable Overhead Spending Variance 260

Fixed Overhead Volume Variance 4,000



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Accounting for Overhead Variances(continued)

To close the variances to Cost of Goods Sold:

Fixed Overhead Volume Variance 4,000

Variable Overhead Spending Variance 260



Variable Overhead Efficiency Variance 600

Fixed Overhead Spending Variance 500



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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)

Direct

Material

Mix

Proportion SP

Standard

Cost

Peanuts 128 lbs 0.80 $0.50 $64.00Almonds 32 lbs 0.20 $1.00 32.00

160 $96.00

Mix

Mix and Yield Variances:Materials and Labor


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Malcom Nut Company produces a batch of 1,600pounds and produces the following actual results:


Direct

Materials Percentages

Peanuts 1,120 lbs 70%

Almonds 480 lbs 30%

1,600 lbs 100%

Yield 1,300 lbs 81.3%

Actual

Mix


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Mix Variance= (AQi SM i)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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Yield variance= (Standard yield Actual yield) Spy

Standard yield = Yield ratio Total actual inputs

Yield variance = (1,200 1,300)$0.80

= $80 F

Direct Materials Yield Variance



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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)

Labor

Type

Mix

Proportion SP

Standard

Cost

Shelling 3 hrs 0.60 $8.00 $24.00

Mixing 2 hrs 0.40 $15.00 30.00

5 $54.00

Mix


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Direct

Labor

Type

Mix

Percen-

tages*

Shelling 20 hrs 40%Mixing 30 hrs 60%

50 hrs 100%

Yield 1,300 lbs 2600.0%

Actual

Mix

*uses 50 hours as the base


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Direct

Labor

Type AH SM AH-SH SP (AH-SM)/SP

Shelling 20 30 (10) $8.00 (80)$

Mixing 30 20 10 $15.00 150$

Mix variance 70$ U

Yield variance= (Standard yield Actual yield)Spy

= [(24 50) 1,300]$0.45

= (1,200 1,300)$0.45

= $45 F

Direct Labor Yield Variance


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COST MANAGEMENT

Guan Hansen Mowen

COPYRIGHT 2009 South-Western Publishing, a division of Cengage Learning.Cengage Learning and South Western are trademarks used herein under license 35

End Chapter 9

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