Chapter 22 - Chapter 22 Author: Anna Rovira Beavers Needles...

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Unformatted text preview: Chapter 22 Author: Anna Rovira Beavers Needles 2008 8/6/07 1 Managerial Accounting Standard Costing and Variance Analysis Chapter 22 Standard Costing: Standard costs are realistic estimates of costs based on analysis of both past and projected operating costs and conditions. Standard costing is a budgetary control technique Standard costing has three components 1. A standard. (A predetermined performance level) 2. Actual performance 3. A variance (comparing actual to standard) Standard costs are pre-determined based on past and projected performance. In manufacturing it can be used in Job Order, Process costing or activity-based costing systems. In service it can be used to measure and evaluate operating performance. A bank or insurance company, for example, can use standard costing. Service organization will not have a material inventory, however, standard levels of labor and overhead can be calculated. Once standards are determined, management use them as a tool for cost planning and control. Developing Standard Costing: The computation of standard costs is more detailed than that of predetermined overhead cost. Whereas predetermined overhead rates are usually based on past cost, standard costs are based on engineering estimates, forecasted demand, worker input, time and motion studies, and type of quality of direct materials. Computing Standard Costs: A standard costing system uses all elements of product cost, that is, Direct Materials, Direct Labor, and Manufacturing Overhead. Calculating Direct Materials Costs Standards: Steps: 1. Calculate the Direct Material Price Standard . Direct Material Price Standard is an estimated of the cost of materials needed in the next accounting period. Typically the purchasing the department is responsible for developing this number. 2. Calculate the Direct Material Quantity Standard . Direct Material Quantity Standard is an estimate of all the materials needed to manufacture the budged number units. The production manager or accountants are responsible for developing this standard. Chapter 22 Author: Anna Rovira Beavers Needles 2008 8/6/07 2 Example: Standard Direct Material Cost = Direct Material Price Standard x Direct Material Quantity Or Standard Materials Price = $2.75 Standard Material Quantity = 8 $2.75 x 8 = $22 Standard Direct Material Cost Calculating Direct Labor Costs Standards: Steps: 1. Calculate the Direct Labor Rate Standard . Direct Labor Rate Standard is the hourly rate expected during the next accounting period. This standard is usually based on labor contracts expected during the next accounting period....
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Chapter 22 - Chapter 22 Author: Anna Rovira Beavers Needles...

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