Standard Costing & Variance Analysis.docx

Standard Costing & Variance Analysis.docx - Napiere...

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Napiere, Argene L. MBA FM Dr. Christopher Biore, CPA Managerial Accounting 12:00pm to 04:30pm Saturday (07.08.17) Standard Costing and Variance Analysis Standard – are expected levels of performance - Established to institute order, discipline, expectations, and normalcy. - Societal standards are reflective of ethics, values and culture, traditions, beliefs, laws decrees. - Organizational standards are expressed in policies, procedures, rules, regulations, manuals, and systems. - Could be financial and non-financial - Quantitative or non-quantitative. Standards functions in management - Planning – standards serves as basis in forecasting. - Organizing and directing – standards are used as monitoring indicators on production yield rate, conformity or nonconformity with administrative policies, and personnel efficiencies. - Controlling – standards are used in variance analyses, for on-line monitoring and corrections, and for end-of the line evaluation and remedial actions. Standard setting - Strategic in nature. - Set by top management outsourced from an independent entity, developed by industrial engineering department, or established with participation and involvement of lover level managers and personnel. - Theoretical or idea, maximum efficiency, or perfection. Capacity levels standard setting - Practical standards or currently attainable standards. – attain the most reasonable production level, with allowances for machine breakdowns, downtimes, inefficiencies, waste and spoilage, and other normal production disturbances. - Budgeted or expected output – is the estimated level of performance that the company plans to achieve in the next 12 months. - Standard capacity – is the estimated capacity that should have been used in actual capacity. It is determined by multiplying actual productions in units by the standard rate per unit produced. - Normal Capacity – is the average production levels over a long period of time. Example Melanie corporation acquired a machine with 200,000 units level of capacity over five years ago. Using this machine, the standard labor time is 2hours per unit. Engineering estimated base on attainable performance is 170,000 units. Management has planned to produce only 160,000 units in the coming year using the same machine. Total production in the last five years is 828,000 with annual production records as follows. First year , 180,000 units , 2 nd year 140,000 units , 3 rd year 170,000 units , four year, 182,000 units , and fifth year, 156,000 units.
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HOUR UNITS UNITS X 2HRS MAXIMUM CAPACITY 200,000 UNITS 400,000 HRS. PRACTICAL CAPACITY 170,000 340,000 BUDGETED CAPACITY 160,000 320,000 NORMAL CAPACITY (828,000 / 5YRS) 165,600 331,200 STANDARD CAPACITY FIRST YEAR(180,000 X 2HRS) 360,000 Standard Cost - An estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions. Standard costs are used as target costs (or basis for comparison with the actual costs ), and are developed from historical data analysis or from time and motion studies.
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