ch11 - Chapter 11 Standard Costs and Variance Analysis...

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Chapter 11 Standard Costs and Variance Analysis LEARNING OBJECTIVES Chapter 11 addresses the following questions: Q1 How are standard costs established? Q2 What is variance analysis, and how is it performed? Q3 How are direct cost variances calculated? Q4 How is direct cost variance information analyzed and used? Q5 How are variable and fixed overhead variances calculated? Q6 How is overhead variance information analyzed and used? Q7 How are manufacturing cost variances closed? Q8 Which profit-related variances are commonly analyzed? (Appendix 11A) These learning questions (Q1 through Q8) are cross-referenced in the textbook to individual exercises and problems. COMPLEXITY SYMBOLS The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems. Questions Having a Single Correct Answer: No Symbol This question requires students to recall or apply knowledge as shown in the textbook. e This question requires students to extend knowledge beyond the applications shown in the textbook. Open-ended questions are coded according to the skills described in Steps for Better Thinking (Exhibit 1.10): Step 1 skills (Identifying) Step 2 skills (Exploring) Step 3 skills (Prioritizing) Step 4 skills (Envisioning)
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11-2 Cost Management QUESTIONS 11.1 Managers need information about the costs of direct materials and direct labor as well as whether direct materials and labor have been used efficiently. If the price and efficiency variances are combined, it is impossible to separate the causes of the variance into potential changes in prices of direct materials (or the labor hourly wage) and changes in the amount of materials (or labor hours) used to manufacture the product. Managers need specific information to better monitor operations and investigate changes. 11.2 Utilities are considered fixed costs. These include phone service, natural gas, and electricity. The use of natural gas and electricity is affected by weather patterns. Because weather patterns change, these costs cannot be perfectly predicted. There may be unanticipated price changes in the cost of utilities. In addition, employees could be careless in their use of electricity or telephones. Therefore, variances occur regularly. 11.3 GAAP requires that revenues and expenses be matched. Revenues from the sales of units must be matched to the costs of producing those same units. When a standard cost system is used, production costs are recorded at standard rather than at actual costs. At the end of the accounting period adjusting entries are made to close the variance accounts and to distribute the amounts to inventory and cost of goods sold. These entries simultaneously close the variance accounts and adjust inventory and cost of goods sold to reflect actual costs for the period. 11.4
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This note was uploaded on 03/07/2011 for the course BUS 352 taught by Professor Ng during the Winter '10 term at Wilfred Laurier University .

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ch11 - Chapter 11 Standard Costs and Variance Analysis...

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