Chapter 8 - Outline

Chapter 8 - Outline - Chapter#8 StandardCosts...

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    Chapter #8 Standard Costs
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    Summary of Chapter A. Setting standard costs 1. Ideal versus practical standards 2. Direct materials standards 3. Direct labor standards 4. Variable manufacturing overhead    standards
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    Summary of Chapter B. Standard cost card C. Computing variances 1. The general variance model 2. Direct materials variances 3. Direct labor variances 4. Variable manufacturing overhead       variances D. (Appendix) Journal entries for variances E. Potential problems with standard costs
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    DEFINITIONS - SETTING STANDARD  COSTS  standard  is a benchmark or  “norm”  for measuring performance. Price standard : How much an input  should cost. Quantity standard : How much of a  given input should be used to make  unit of output.
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    IDEAL VERSUS PRACTICAL  STANDARDS Ideal standards  allow for no machine  breakdowns or work interruptions, and can  be attained only by working at peak effort  100% of the time. Such standards: often discourage workers. shouldn’t be used for decision making.
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    IDEAL VERSUS PRACTICAL  STANDARDS Practical standards  allow for “normal” down time,  employee rest periods, and the like. Such  standards: are felt to motivate employees, since the  standards are “tight but attainable.” are useful for decision-making purposes,  since variances from standard will  contain  only “abnormal” elements.
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    DIRECT MATERIAL STANDARDS Speeds, Inc. makes a popular jogging suit. The  company wants to develop standards for material,  labor, and variable manufacturing overhead. The  standard price per unit  for direct materials  should be the final, delivered cost of materials. The  standard price should reflect: Specified quality of materials. Discounts for quantity purchases. Discounts for early payment, if any. Transportation (freight) costs. Receiving and handling costs.
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    EXAMPLE A material known as verilon is used in the jogging  suits. The standard price for a yard of verilon is  determined as follows: Purchase price, top grade verilon $ 5.70  Less purchase discount in       20,000 yard lots   (0.20) Shipping by truck    0.40  Receiving and handling    0.10   Standard price per yard $ 6.00  
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    DIRECT MATERIAL STANDARDS  (cont’d) The  standard quantity per unit  for direct materials  is the amount of material that should go into each  finished unit of product. The standard quantity  should reflect: Engineered (bill of materials)  requirements. Expected spoilage of raw materials.
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Chapter 8 - Outline - Chapter#8 StandardCosts...

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