chapter09 - CHAPTER 9 Standard Costing:A Functional-Based...

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CHAPTER 9 Standard Costing: A Functional-Based Control Approach LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Describe how unit input standards are developed, and explain why standard costing systems are adopted. 2. Explain the purpose of a standard cost sheet. 3. Compute and journalize the direct materials and direct labor variances, and explain how they are used for control. 5. Compute overhead variances three different ways, and explain overhead accounting. 6. Calculate mix and yield variances for direct materials and direct labor. CHAPTER SUMMARY This chapter examines the functional-based standard costing systems in managing costs, im- proving planning and control, and facilitating decision making and product costing. It provides de- tailed discussion of cost variance analyses for all product cost elements and considers their be- havioral implications. Mix and yield variance analyses are also presented when it is possible to make input substitutions. CHAPTER REVIEW I. Developing Unit Input Standards A. Decisions to Be Made 1. Price standards specify how much should be paid for the quantity of the input to be used. 2. Quantity standards specify how much of the input should be used per unit of out- put. 3. The unit standard cost for a particular input = Standard price × Standard quant- ity. B. Establishing Standards 1. Potential sources of quantitative standards include historical experience, engineer- ing studies, and input from operating personnel. a. Historical experience should be used with caution because it may perpetuate operating inefficiencies. 187 Learning Objective #1
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188 Chapter 9 b. Engineering studies and input from operating personnel help determine the most efficient level of input quantities. The use of an engineering study approach by itself may produce standards that are too rigorous. 2. Responsibilities for establishing price standards a. Operations managers determine the quality of the inputs required. b. Personnel and purchasing have the responsibility to acquire the input quality at the lowest price that is limited by market forces and trade unions. Note that: Purchasing must consider discounts, freight, and quality. Personnel must consider payroll taxes, fringe benefits, and qualifications. c. Accounting is responsible for recording the price standards and for preparing reports. C. Types of Standards 1. Ideal standards are standards that demand maximum efficiency. Can only be achieved if everything operates perfectly. 2. Currently attainable standards can be achieved under efficient operating condi- tions. a. These standards are demanding but achievable. b. Allowance is made for normal breakdowns, interruptions, and differing skill levels. c.
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chapter09 - CHAPTER 9 Standard Costing:A Functional-Based...

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