Chapter_25_for_Class - Chapter 25 Standard Costing and...

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1 Chapter 25 “Standard Costing and Variance Analysis”
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2 Standard Costing Objective 1 Define standard costs and describe how managers use standard costs in the management cycle
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3 Standard Costing … is a method of cost control that includes a measure of actual performance and a measure of the difference, or variance , between standard and actual performance
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4 Standard Costs Realistic estimates of costs Based on analysis of both past and projected operating costs and conditions Provide a predetermined performance level for the standard costing method Usually stated in terms of cost per unit
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5 Standard Costs (cont’d) Based on Past costs Engineering estimates Forecasted demand Worker input Time and motion studies Type and quality of direct materials
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6 Standard Costing How the standard costing method differs from the normal and actual costing methods (see page 841) Product Cost Elements Standard Costing Normal Costing Actual Costing Direct Materials Estimated costs Actual costs Actual costs Direct Labor Estimated costs Actual costs Actual costs Manufacturing Overhead Estimated costs Estimated costs Actual costs
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7 Standard Costs and the Management Cycle Planning Managers use standard costs to Develop budgets Direct materials Direct labor Variable manufacturing overhead Establish goals for product costing
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8 Standard Costs and the Management Cycle (cont’d) Executing Managers use standard costs to Apply dollar, time, and quality standards to work Collect actual cost data
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9 Standard Costs and the Management Cycle (cont’d) Reviewing Managers compare standard and actual costs Compute variances Provide measures of performance that can be used to control costs and evaluate managers Analyze significant variances to determine cause » Unfavorable variances may reveal operating problems that require correcting » Favorable variances may indicate favorable practices that should be implemented elsewhere
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10 Standard Costs and the Management Cycle (cont’d) Reporting Managers use standard costs to report on Operations Managers’ performance
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11 Standard Costing, Variance Analysis, and the Management Cycle
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12 The Relevance of Standard Costing in Today's Business Environment Manufacturing companies Increased automation Significant decrease in direct labor cost Corresponding decline in importance of labor-related standard costs and variances Many companies now apply standard costing only to direct materials and manufacturing overhead Service organizations Use standard costing for direct labor and service overhead costs
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13 Discussion A. What is the main difference between the standard costing and normal costing methods?
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14 Discussion A. What is the main difference between the standard costing and normal costing methods? A.
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Chapter_25_for_Class - Chapter 25 Standard Costing and...

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