Cost%20Acctg%20Chapter%209 - Cost Accounting Chapter 9...

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Cost Accounting  Chapter 9 Standard Costing: A  Managerial Control  Tool
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9 -2 1. Explain how unit standards are set and why standard costing systems are adapted. 2. State the purpose of a standard cost sheet. 3. Describe the basic concepts underlying variance analysis, and explain when variances should be investigated. 4 . Compute the material and labor variances, and explain how they are used for control. Objectives Objectives
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9 -3 1. Calculate the variable and fixed overhead variances, and give their definitions. 2. Describe the Mix and Yield components of variance analysis and explain their purposes 3. Appendix: Prepare journal entries for materials and labor variances, and show how to account for overhead variances. Objectives Objectives
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9 -4 Basic Understanding Basic Understanding Background Information for Background Information for Managing a Standard Cost Managing a Standard Cost System System
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9 -5 Comprehensive Plan or Master Budget 1. First step is a Sales Forecast or Plan (pro-forma, budgeted, planned, estimate, expected – they all mean the same thing) 2. End products are pro-forma or budgeted financial statements (B/S, P/L, Cash Flow, etc.) – broken down by department and/or product line 3. Budgeting is performed by segment or department (geographical sales, sale person, division, department, product lines, etc.) 4. Budgeting is necessary to have performance and analyses of variances (differences) – comparison of expected performance to actual performance 5. Standard costs and selling prices are the basic building blocks of the budgeting process
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9 -6 Operational Concepts Traditional Contribution P/L Margin P/L Sales XX Sales XX COGS XX Variable Costs XX Gross Margin XX Contribution Margin XX Period Costs XX Fixed Overhead XX Income XX Income XX Sales Factors: Mix Volume Price Cost Factors: Variances Risk/Uncertainty: B/S Impact
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9 -7 1. Variances are differences between Budget & Actual and occur for both fixed costs and variable costs 2. Standard cost is a predetermined cost to produce a specific quantity of product or service 3. Standard costs generally used for production but can be used in any stable environment where there is a relationship between activities and costs 4. Standard can be used in a job or process cost system
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9 -8 Standard Costs 1. Variances occur in both fixed costs and variable costs 2. Variable costs: Direct Material, Direct Labor and Overhead (MOH or OH) 3. MOH or OH: has BOTH fixed and variable portions 4. How are standards set: past history, knowledge of the business and other industry information (best practices, industry cost studies, etc.)
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9 -9 Types of Standard Costs 1. Engineering (Ideal) Standard : based on the very best or perfection conditions. Used in cases where necessary and/or practical and expect unfavorable variances.
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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Cost%20Acctg%20Chapter%209 - Cost Accounting Chapter 9...

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