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

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Unformatted text preview: Chapter 9 Standard Costs and the Balanced Scorecard Suggested Homework: E9-1 thru E9-4; E9-7 thru E9-9; P9-14 Standard Costs Standards are benchmarks or norms for measuring performance. Two types of standards are commonly used. 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. Standard Costs Direct Material Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception . Type of Product Cost Amount Direct Labor Manufacturing Overhead Standard Variance Analysis Cycle Prepare standard cost performance report Analyze variances Begin Identify questions Receive explanations Take corrective actions Conduct next periods operations Exhibit 9-1 Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient future production. Setting Standard Costs Setting Standard Costs Should we use ideal standards that require employees to work at 100 percent peak efficiency? Engineer Managerial Accountant I recommend using practical standards that are currently attainable with reasonable and efficient effort. Setting Direct Material Standards Price Standards Summarized in a Bill of Materials. Final, delivered cost of materials, net of discounts. Quantity Standards Setting Standards Six Sigma advocates have sought to eliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste and spoilage that are built into standards should be reduced over time. Setting Direct Labor Standards Rate Standards Often a single rate is used that reflects the mix of wages earned. Time Standards Use time and motion studies for each labor operation. Setting Variable Overhead Standards Rate Standards The rate is the variable portion of the predetermined overhead rate. Activity Standards The activity is the base used to calculate the predetermined overhead. Standard Cost Card Variable Production Cost A standard cost card for one unit of product might look like this: A A x B Standard Standard Standard Quantity Price Cost Inputs or Hours or Rate per Unit Direct materials 3.0 lbs. 4.00 $ per lb. 12.00 $ Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost 54.50 $ B Are standards the same as budgets? A budget is set for total costs. Standards vs. Budgets A standard is a per unit cost. Standards are often used when preparing budgets. Price and Quantity Standards Price and and quantity standards are determined separately for two reasons: The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used....
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This note was uploaded on 03/05/2010 for the course ACCT 285 taught by Professor Carver during the Fall '08 term at Iowa State.

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

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