Chapter 9-Student - CHAPTER 9 Class Notes Standard Costs...

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CHAPTER 9 Class Notes Standard Costs Compiled by: Lei Wang, CPA Certain materials used with permission of Janice Fergusson or McGraw-Hill, Inc. Standards are __________________________________________ A measure of how much _________________paid or how much __________________ used. Managers can compare actual costs to standard costs to measure performance – process is called _____________________________. Ideal versus Practical Standards Ideal standards allow for ______ work interruptions, and can be attained only by working at peak effort _______ of the time. Such standards often discourage workers. Practical standards are attainable with reasonable and efficient effort (allow for _____________ down time). Such standards are: felt to motivate employees, since the standards are “tight but attainable.” useful for decision-making purposes, since variances from standard will contain only “abnormal” elements. Setting Standard Costs DIRECT MATERIAL STANDARDS : The standard ______________ 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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ACCT 226 – Chapter 9 Page 2 of 12 Spring 2010 – Student Version The standard _________________ 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. Unavoidable waste of materials in the production process. Materials in expected scrapped units (rejects). DIRECT LABOR STANDARDS : The standard ____________ per hour for direct labor should include all the costs of direct labor workers, including: Hourly wage rates Fringe benefits Employment taxes Most companies prepare a single standard rate for all employees in a department, based on the expected mix of high and low wage rate employees. The standard ____________ per unit for direct labor specify the amount of direct labor time required to complete one unit of product. This standard time should include: Engineered labor time per unit. Allowance for breaks, personal needs, and cleanup. Allowance for setup and other machine downtime. Allowance for rejects. VARIABLE OVERHEAD STANDARDS : These standards are typically expressed in terms of a “rate” and “hours,” much like direct labor. The ____________ is the ___________________ of the predetermined overhead rate. The _____________ represent whatever base is used to apply overhead cost to products. Ordinarily, this would be direct labor- hours or machine-hours.
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ACCT 226 – Chapter 9 Page 3 of 12 Spring 2010 – Student Version STANDARD COST CARD : After standards have been set for materials, labor, and overhead, a standard cost card is prepared. The standard cost card indicates what the cost should be for a completed unit of product.
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