Chapter_10_Lecture_Notes

Chapter_10_Lecture_Notes - Chapter 10 Lecture Notes I....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 Lecture Notes I. Standard costs – management by exception A. Basic definitions/concepts i. A standard is a benchmark or “norm” for measuring performance. In managerial accounting, two types of standards are commonly used: 1. Quantity standards specify how much of an input should be used to make a product or provide a service. 2. Cost (price) standards specify how much should be paid for each unit of the input. ii. Management by exception is a system of management in which standards are set for various operating activities, with actual results compared to these standards . Any deviations that are deemed significant are brought to the attention of management as “exceptions.” II. Setting standard costs A. General concepts i. Standards should be designed to encourage efficient future operations , not just a repetition of past inefficient operations. ii. Standards tend to fall into one of two categories : 1. Ideal standards can only be attained under the best of circumstances. They allow for no work interruptions and they require employees to work at 100% peak efficiency all of the time. 2. Practical standards are tight but attainable. They allow for normal machine downtime and employee rest periods and can be attained through reasonable, highly efficient efforts by the average worker. a. Practical standards can also be used for forecasting cash flows and in planning inventory. B. Setting direct materials standards i. The standard price per unit for direct materials should reflect the final, delivered cost of the materials, net of any discounts taken. 6
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ii. The standard quantity per unit for direct materials should reflect the amount of material required for each unit of finished product, as well as an allowance for unavoidable waste, spoilage, and other normal inefficiencies. C. Setting direct labor standards i. The standard rate per hour for direct labor includes not only wages earned but also fringe benefits and other labor costs. ii.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 05/04/2009.

Page1 / 6

Chapter_10_Lecture_Notes - Chapter 10 Lecture Notes I....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online