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Accounting: Tools for Business Decision Making

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Chapter 22 Standard Costs 12 A standard can be defined as a benchmark or “norm” for measuring performance. 13 The broadest application of the standard cost idea is found in manufacturing firms. Such firms often develop standards in detail for the materials, labor, and overhead cost of each separate product. IDEAL VS. PRACTICAL STANDARDS Ideal standards allow for no machine break-downs or work interruptions, and can be attained only by working at peak effort 100 percent of the time. Such standards: 14 often discourage workers. 15 shouldn’t be used for decision making. Practical standards allow for “normal” machine down time, employee rest periods, etc. Such standards: 16 are felt to motivate employees, since the standards are “tight but attainable.” 17 are useful for decision making purposes, since variances from standard will contain only “abnormal” elements.
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Computing Variances for Direct Materials and Direct Labor Materials Price Variance: (AQ X AP) – (AQ X SP) or
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Chapter%2022%20%20lecture%20notes%20Kimmel[1] - Chapter 22...

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