Chapter11Student2017(1).docx - Chapter 11 Standard Costs and Variances(Through page 668 only \u2013 LO 1-4 10.1 Budget for a Single Unit What it

# Chapter11Student2017(1).docx - Chapter 11 Standard Costs...

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Chapter 11 - Standard Costs and Variances (Through page 668 only – LO 1-4) 10.1 Budget for a Single Unit What it “should” cost to make a single unit Each component of manufacturing cost (DM, DL,MOH) has a o Price/ Rate Standard o Quantity/ Efficiency Standards Standards need to be reviewed and kept up to date Service and Merchandising firms also use standard costs Ideal vs. Practical Standards Ideal (or Perfection) Standards o Do not allow for waste or down time o May be hard to motivate employees Practical (or Attainable) Standards o Include allowances for normal waste and down time o Used by most companies o Better for motivation as employees feel they can reach goals Price/ Rate Standards Accountants help operating managers set direct material price standards o Direct materials Purchasing manager Purchase price (after early-pay discount) + freight-in + receiving costs o Direct labor Human resources or personnel managers Basic pay rates + payroll taxes + fringe benefits o Overhead – Separate rates for variable and fixed overhead Quantity/Efficiency Standards Set by engineers and production managers o Material standards - allow for unavoidable waste and spoilage o Labor standards - allow for unavoidable work interruptions and normal downtime o Manufacturing overhead – determine resources needed for support activities
Kalanja Designs, which produces earrings, is developing direct material standards. Each earring requires 0.52 kilograms of a special metal. The allowance for waste is 0.03 kilograms per earring, while the allowance for rejects is 0.02 kilograms per earring. What is the standard quantity of metal per earring? 0.57 Hodge Confections is known for its creamy milk chocolate fudge. Hodge sells its fudge to local retailers. A unit of fudge is a 10-pound batch. The standard quantity for a batch of fudge follows: Granulated sugar 7 cups Chocolate chips 23 ounces Butter 1 pound Evaporated milk 18 ounces The ingredients are purchased in the following quantities at the listed prices: Granulated sugar 20 lb. bag

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• Summer '14
• Direct material price variance, production manager, Actual Hours

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