Managerial Acct Chapter 8

Managerial Acct Chapter 8 - Chapter 8 Standard Costing...

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Chapter 8 Standard Costing Definition: 1. The standard costs are determined for each element of cost. Direct material. | Direct labor. | ------ Fixed & variable Over head. | 2. A standard cost is a predetermined cost for the production of goods or services, which services as a benchmark against which to compare the actual cost. 3. The difference between standard cost and actual Cost is called cost variance . (Favorable or unfavorable) 4. Physical standard for the production process relates to the standard requirements necessary to manufacture a Product. These standards are as follows: - quantities of raw materials , - hours of direct labors - hours of processing time and similar measures - These physical standards expressed in terms of dollars of costs. 5- Standard are useful aids to management in planning, control, performance evaluation, cost reduction programs, pricing studies made to assist management in the decision making process
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Types of Standard Costing 1- Ideal performance . * (Represents perfection) which means all factors in the production process are assumed to interact perfectly. This demand maximum efficiency and to be achieved only if every thing operates perfectly which is no machine breaks down, or lack of skill, waste or spoilage of direct material etc….,. 2- Standard based on attainable performance. This can be achieved under efficient operating condition and allowance is made for normal breakdown. Attainable standard represent a level of efficiency and effectiveness that can be attained over a sustained production period if all of the factors of production are operating and interacting at a satisfactory level. Attainable standard are normally considered the proper standard to be applied to the many management accounting. Challenging but achievable standards can lead to higher performance levels, particularly when the individual subject to the standard have Participated in their creation.
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Standard Costing This mainly applies to manufacturing of product or providing a service.
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