Chapter 9-MA

Chapter 9-MA - Chapter 9-Standard Costs and the Balanced...

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Chapter 9-Standard Costs and the Balanced Scoreboard Standard Costs—management by exception A standard is a benchmark or “norm” for measuring performance Standards in managerial accounting relate to the quantity and cost (or acquisition price) of inputs used in manufacturing goods or providing services Quantity and cost standards are set for each major input such as raw materials and labor time Quantity standards specify how much of an input should be used to make a product or provide a service Cost(price) standards specify how much should be paid for each unit of the input Actual quantity and cost are compared to standards, if they departs significantly, managers investigate the discrepancy to find the cause of the problem and eliminate it. This process is called management by exception-investigating a discrepancy, finding the cause, and eliminating it Discrepancy---variance The basic approach to identifying and solving problems is the essence of the variance analysis cycle Exhibit 9-1 o Cycle begins with the preparation of standard cost performance reports in the accounting department These reports highlight the variances , which are the differences between actual result and what should have occurred according to standards o The variances raise questions Why did this variance occur? Why is this variance larger than it was last period? o The significant variances are investigated to discover their root causes o Corrective actions are taken o Next period’s operations are carried out Who uses standard costs? Manufacturing, service, food, and not-for-profit organizations all make use of standards to some extent Standard cost card: shows the standard quantities and costs of the inputs required to produce a unit of a specific product
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Setting Standard Costs Standards should be designed to encourage efficient future operations, not just a repetition of past operations that may or may not have been efficient Ideal versus practical standards Show standards be attainable all of the time, part of the time, or almost none of the time? Ideal Standards:
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Chapter 9-MA - Chapter 9-Standard Costs and the Balanced...

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