review22 - CHAPTER 22 Standard Costing and Variance...

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CHAPTER 22 Standard Costing and Variance Analysis 00001REVIEWING THE CHAPTER Objective 1: Define standard costs, and describe how managers use these costs. 10. Standard costs are realistic estimates of costs based on analyses of both past and projected costs and operating conditions. They provide a standard, or predetermined, performance level for use in standard costing, a method of cost control that also includes a measure of actual performance and a measure of the difference, or variance, between standard and actual performance. This method of measuring and controlling costs differs from the actual and normal costing methods in that it uses estimated costs only to compute all three elements of product cost—direct materials, direct labor, and overhead. Standard costing is especially effective for managing cost centers. 20. In the planning step of the management process, managers use standard costs to develop budgets for direct materials, direct labor, and variable overhead. These estimated costs not only serve as targets for product costing; they are also useful in making decisions about product distribution and pricing. In performing daily operations, managers use standard costs to measure expenditures and to control costs as they occur. At the end of an accounting period, managers evaluate operating performance by comparing actual costs with standard costs and computing variances. The variances provide measures of performance that can be used to control costs. Managers also use standard costs to report on operations and managerial performance. Variance reports tailored to a manager’s responsibilities communicate useful information about how well operations are proceeding and how well the manager is controlling them. Objective 2: Explain how standard costs are developed, and compute a standard unit cost. 30. A fully integrated standard costing system uses standard costs for all the elements of product cost. Inventory accounts for materials, work in process, and finished goods, as well as the Cost of Goods Sold account, are maintained and reported in terms of standard costs, and standard unit costs are used to compute account balances. Actual costs are recorded separately so that managers can compare what should have been spent (the standard costs) with the actual costs incurred in the cost center. 40.
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This note was uploaded on 06/10/2009 for the course ACG 2071 taught by Professor Magoulis,b during the Spring '08 term at Pasco-Hernando Community College.

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review22 - CHAPTER 22 Standard Costing and Variance...

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