ACC221ch10sp08

ACC221ch10sp08 - ACC221 Chapter 10 Standard Costs and the...

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1 ACC221 Chapter 10 Standard Costs and the Balanced Scorecard 2 Objectives 1. Explain how direct materials standards and direct labor standards are set. 2. Compute the direct materials price and quantity variances and explain their significance. 3. Compute the direct labor rate and efficiency variances and explain their significance.
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3 Objectives 4. Compute the variable manufacturing overhead spending and efficiency variances. 5. Understand how a balanced scorecard fits together and how it supports a company’s strategy. 6. Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE). 4 Objective 1 Explain how direct materials standards and direct labor standards are set.
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5 Standards Standard – a benchmark or “norm’ for measuring performance. Standards in managerial accounting relate to the quantity and cost of inputs into the manufacturing process. Quantity standard – indicates how much of an input should be used in manufacturing a unit of product or in providing unit of service. Cost Standard – indicates what the cost or purchase price of the input should be. 6 Ideal vs. Practical Standards Ideal Standards that can be attained only under the best circumstances. Practical Standards that are “tight but attainable”
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7 Management by Exception Significant discrepancies between actual quantities and costs and standard quantities and costs are reviewed and investigated by management. The cause is determined to try to eliminate the cause so the discrepancy does not recur. 8 Variance Analysis Cycle Prepare standards Cost performance Report Take Corrective Actions Conduct Next period’s Operations Analyze Variances Identify Questions Receive Explanations
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9 Setting Standard Costs Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient and future production. Engineers tend to look at ideal standards, which would be set at 100 percent peak efficiency. Accountants tend to look at practical standards, which factor in items that cause certain inefficiencies. TQM experts advocate eliminating estimates for defects and wastes from standards. 10 Direct Materials Standards Standard material price per unit (direct material price standard) – should reflect the final delivered costs of the materials, net of any discounts taken. Standard material quantity per unit – should reflect the amount of material going into each unit of finished product, as well as an allowance for unavoidable waste, spoilage and other normal inefficiencies. These items are summarized in a bill of materials.
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This note was uploaded on 06/09/2008 for the course ACC 221 taught by Professor Tribunella during the Spring '08 term at Rochester.

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ACC221ch10sp08 - ACC221 Chapter 10 Standard Costs and the...

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