Chap 010 managerial accounting Hilton

8/9/2019 Chap 010 managerial accounting Hilton

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Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

LearningObjective

1


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Managing CostsManaging Costs

Standardcost

Actualcost

Comparison beteenstandard and actual

performancelevel

Costvariance


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Management b! "#ceptionManagement b! "#ception

DirectMaterial

Managers focus on quantities and coststhat exceed standards, a practice known asmanagement by exception

!ype of "roduct Cost

Amount

Direct#abor

Standard


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LearningObjective

$


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Setting StandardsSetting Standards

Analysis of$istorical Data

!askAnalysis

CostStandards


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%ccountants, engineers, personnel administrators, and

production managers combine efforts to set standards

based on e#perience and e#pectations&

Participation in Setting StandardsParticipation in Setting Standards


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Perfection versus PracticalPerfection versus Practical

Standards' % Behavioral (ssueStandards' % Behavioral (ssue

Should we usepractical standards

or perfectionstandards%

"ractical standardsshould be set at levels

that are currentlyattainable withreasonable andefficient effort


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)se of Standards b!)se of Standards b!

Service Organi*ationsService Organi*ations

+ Standard cost

analysis may be usedin any organi'ationwith repetitive tasks

+ A relationship

between tasks andoutput measuresmust be established


11/69Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

LearningObjective


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Standard Cost(ariances

Cost -ariance %nal!sisCost -ariance %nal!sis

)uantity(ariance"rice (ariance

.he difference beteenthe actual price and the

standard price

.he difference beteenthe actual /uantit! andthe standard /uantit!


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% eneral Model for -ariance% eneral Model for -ariance%nal!sis%nal!sis

Actual)uantity Actual )uantity Standard )uantity * * *

Actual"rice Standard"rice Standard "rice

"rice (ariance )uantity (ariance

Materials price variance Materials /uantit! variance Labor rate variance Labor efficienc! variance -ariable overhead -ariable overhead

spending variance efficienc! variance

A)+A" S"- S"+A) S)-

A). Actual )uantity S". Standard "rice A" . Actual "rice S). Standard )uantity


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Actual )uantity Actual )uantity Standard )uantity * * *Actual "rice Standard "rice Standard "rice


Standard price is the amount that shouldhave been paid for the resources acquired


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Standard quantity is the quantity that shouldhave been used


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Standard CostsStandard Costs

#et/s use the concepts

of the general model to

calculate standard cost

variances, starting with

direct material


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anson (nc& has the folloing direct material

standard to manufacture one 2ipp!'1&3 pounds per 2ipp! at 45&00 per pound

Last ee6 1,700 pounds of material erepurchased and used to ma6e 1,000 2ippies&

.he material cost a total of 48,80&

Material -ariancesMaterial -ariances 0ippy


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9hat is the actualprice per poundpaid for the material:

a& 45&00 per pound&

b& 45&10 per pound&

c& 4&;0 per pound&

d& 48&8 per pound&



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9hat is the actualprice per poundpaid for the material:

a& 45&00 per pound&

b& 45&10 per pound&

c& 4&;0 per pound&d& 48&8 per pound&

A" . 12,234 5 6,744 lbsA" . 1384 per lb



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$anson/s directmaterial price variance +M"(-for the week was9

a 1674 unfavorable

b 1674 favorable

c 1:44 unfavorabled 1:44 favorable



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$anson/s directmaterial price variance +M"(-for the week was9

a 1674 unfavorable

b 1674 favorable


M"( . A)+A" S"-M"( . 6,744 lbs * +1384 ;44-M"( . 1674


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.he standard /uantit! of material thatshould have been used to produce

1,000 2ippies is'

a& 1,700 pounds&

b& 1,300 pounds&c& $,330 pounds&

d& $,000 pounds&



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.he standard /uantit! of material thatshould have been used to produce

1,000 2ippies is'

a& 1,700 pounds&

b& 1,300 pounds&c& $,330 pounds&

d& $,000 pounds&

S) . 6,444 units * 6= lbs per unitS) . 6,=44 lbs



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$anson/s directmaterial quantity variance +M)(-for the week was9

a 1674 unfavorable

b 1674 favorable




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$anson/s directmaterial quantity variance +M)(-for the week was9

a 1674 unfavorable

b 1674 favorable

c 1:44 unfavorable

d 1:44 favorable

M)( . S"+A) S)-M)( . 1;44+6,744 lbs 6,=44 lbs-M)( . 1:44 unfavorable



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6,744 lbs 6,744 lbs 6,=44 lbs * * * 1384 per lb 1;44 per lb 1;44 perlb

12,234 1 2,:44 12,444

"rice variance1674 favorable

)uantity variance1:44 unfavorable

Material -ariances Summar!Material -ariances Summar!


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!he price variance iscomputed on the entire

quantity purchased!he quantity variance iscomputed only on the

quantity used

$anson purchased andused 6,744 pounds

$ow are the variancescomputed if the amountpurchased differs from

the amount used%

0ippyMaterial -ariancesMaterial -ariances


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anson (nc& has the folloing materialstandard to manufacture one 2ipp!'

1&3 pounds per 2ipp! at 45&00 per pound

Last ee6 $,


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Material -ariancesMaterial -ariances

Actual )uantity Actual )uantity "urchased "urchased

* *Actual "rice Standard "rice

>,:44 lbs >,:44 lbs* *

1384 per lb 1;44 per lb

164,8>4 166,>44

"rice variance1>:4 favorable

Price variance increasesbecause /uantit!

purchased increases&

0ippy

M"( . A)+A" S"-M"( . >,:44 lbs

*+1384 ;44-M"( . 1>:4


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Actual )uantity ?sed Standard )uantity

* *Standard "rice Standard "rice

6,744 lbs 6,=44 lbs * * 1;44 per lb 1;44 per lb

12,:44 12,444

)uantity variance1:44 unfavorable

=uantit! variance isunchanged becauseactual and standard

/uantities are unchanged&


M)( . S"+A) S)-M)( . 1;44+6,744 lbs

6,=44 lbs-M)( . 1:44unfavor


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(solation of Material -ariances(solation of Material -ariances

( need the variances as soonas possible so that ( canbetter identif! problems

and control costs&

>ou accountants just don?tunderstand the problems

e production managers have&

O6a!& (?ll start computingthe price variance hen

material is purchased andthe /uantit! variance assoon as material is used&


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Standard CostsStandard Costs

@ow let/s calculatestandard costvariances for

direct labor


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$anson &nc has the following direct laborstandard to manufacture one 0ippy9

6= standard hours per 0ippy at 16444 per directlabor hour

#ast week 6,==4 direct labor hours wereworked at a total labor cost of 16=,:64 tomake 6,444 0ippies

Labor -ariancesLabor -ariances 0ippy


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hat was $anson/s actualrate +AB-for labor for the week%

a 164>4 per hour

b 16464 per hour

c 1884 per hourd 18:4 per hour



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hat was $anson/s actualrate +AB-for labor for the week%

a 164>4 per hour

b 16464 per hour

c 1884 per hourd 18:4 per hour


AB . 16=,:64 5 6,==4 hours

AB . 164>4 per hour


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$anson/s labor rate variance +#B(-for the week was9

a 1364 unfavorable

b 1364 favorable

c 1344 unfavorabled 1344 favorable



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$anson/s labor rate variance +#B(-for the week was9

a 1364 unfavorable

b 1364 favorable

c 1344 unfavorabled 1344 favorable

Labor -ariancesLabor -ariances

#B( . A$+AB SB-#B( . 6,==4 hrs+164>4 16444-#B( . 1364 unfavorable

0ippy


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!he standard hours +S$- of labor thatshould have been worked to produce

6,444 0ippies is9

a 6,==4 hours

b 6,=44 hoursc 6,744 hours

d 6,:44 hours



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!he standard hours +S$- of labor thatshould have been worked to produce

6,444 0ippies is9

a 6,==4 hours

b 6,=44 hoursc 6,744 hours

d 6,:44 hours


S$ . 6,444 units * 6= hours per unitS$ . 6,=44 hours

0ippy


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$anson/s labor efficiency variance +#(-for the week was9

a 1=64 unfavorable

b 1=64 favorable

c 1=44 unfavorable

d 1=44 favorable


#( . SB+A$ S$-#( . 16444+6,==4 hrs 6,=44 hrs-#( . 1=44 unfavorable

0ippy


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Actual $ours Actual $ours Standard $ours * * *

Actual Bate Standard Bate Standard Bate

Labor -ariances Summar!Labor -ariances Summar!

Bate variance1364 unfavorable

fficiency variance1=44 unfavorable

6,==4 hours 6,==4 hours 6,=44 hours * * *164>4 per hour 16444 per hour 16444 per hour

16=,:64 16=,=44 16=,444


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Learning

Objective5


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1& Si*e of variance1& @ollar amount

$& Percentage of standard

$& Aecurring variances& .rends

5& Controllabilit!

3& avorable variances8& Costs and benefits of

investigation

Significance of Cost -ariancesSignificance of Cost -ariances

hat clues help meto determine the

variances that & shouldinvestigate%


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Statistical Control ChartStatistical Control Chart

6 > 3 ; = 2 7 : 8

(ariance Measurements


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Learning

Objective3


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Controllabilit! of -ariancesControllabilit! of -ariances

DirectMaterial"rice (ariance

Direct#aborBate (ariance

DirectMaterial)uantity (ariance

Direct#aborfficiency (ariance


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(nteraction among -ariances(nteraction among -ariances

( am not responsible forthe unfavorable labor

efficienc! varianceD

>ou purchased cheapmaterial, so it too6 more

time to process it&

>ou used too muchtime because of poorl!

trained or6ers andpoor supervision&


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Learning

Objective8

Standard Costs and Prod ctStandard Costs and Product


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Standard Costs and ProductStandard Costs and Product

CostingCosting

Standard material and labor costsare entered into orkin"rocess

inventory instead of actual costs

Standard material and labor costsare entered into orkin"rocess

inventory instead of actual costs

Standard cost variances

are closed directly toCost of Eoods Sold

Standard cost variances

are closed directly toCost of Eoods Sold


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Learning

Objective7


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%dvantages of Standard Costing%dvantages of Standard Costing

Management byxception

Stable "roductCosts

Sensible CostComparisons

Advantages

"erformancevaluation

mployeeMotivation


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Learning

Objective

Documents

Chap 010 managerial accounting Hilton