Chapter 11

Chapter 11 - Chapter 11 Standard Costs and Balanced...

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Chapter 11: Standard Costs and Balanced Scorecard The Need for Standards (1) Regulations - standards put in place by government agencies (a) Those made internally can extend to personal matters (2) Standard costs - predetermined unit costs, which companies use as a measure of performance a) Distinguishing between Standards and Budgets (1) Both are predetermined costs and both contribute to management planning and control (2) Standard- UNIT amount, budget - TOTAL amount i. Standard is the budgeted cost per unit , concerned with each individual cost component that makes up the entire budget (3) Standard costs are incorporated in cost account systems, budgets are not (4) Inventories can be budgeted at standard costs, not budgeted b) Why Standard Costs? (1) Facilitate management planning, promote greater economy by making employees cost conscious, useful in setting selling prices, contribute to management control by providing basis for evaluation of cost control, useful in highlighting variances in management by exception, simplify costing of inventories and reduce clerical costs Setting Standard Costs- A Difficult Task (1) Setting standard costs is a difficult task, must confront all involved in those costs/quantities (i) DM purchasing agents, product managers, quality control engineers, and production supervisors (ii) DL pay rate data, industrial engineers, (2) Current at all times, under continuous review for change a) Ideal versus Normal Standards a. Ideal standards- represent optimum levels of performance under perfect operating conditions i. Stimulate workers for improvement, but also very hard, and lower morale, not many use this b. Normal standards - represent efficient levels of performance that are attainable under expected operating conditions- RIGOROUS BUT ATTAINABLE i. Allow for rest periods, breakdowns, etc b) A Case Study a. DM, DL and OH need a standard cost, derived from standard price and quantity to be used b. Direct Materials i. Direct materials price standard - cost per unit of DM that should be incurred, based on estimate of COST OF RAW MATERIALS 1. Purchase price, freight, receiving and handling ii. Direct materials quantity standard-
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Chapter 11 - Chapter 11 Standard Costs and Balanced...

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