Warren%20SMChap22_07_.pdf

Warren%20SMChap22_07_.pdf - CHAPTER 22 (FIN MAN); CHAPTER 7...

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303 CHAPTER 22 (FIN MAN); CHAPTER 7 (MAN) PERFORMANCE EVALUATION USING VARIANCES FROM STANDARD COSTS EYE OPENERS 1. Standard costs assist management in con- trolling costs and in motivating employees to focus on costs. 2. Management can use standards to assist in achieving control over costs by investigating significant deviations of performance (vari- ances) from standards and taking corrective action. 3. Reporting by the “principle of exceptions” is the reporting of only variances (or “excep- tions”) between standard and actual costs to the individual responsible for cost control. 4. There is no set time period for the revision of standards. They should be revised when prices, product design, labor rates, and manufacturing methods change to such an extent that current standards no longer rep- resent a useful measure of performance. 5. Standard costs for direct materials, direct labor, and factory overhead per unit of prod- uct are used in budgetary performance evaluation. Product standard costs are mul- tiplied by the planned production volumes. Budget control is achieved by comparing actual results with the standard costs at ac- tual volumes. 6. a. The two variances in direct materials cost are: (1) Price (2) Quantity b. The price variance is the result of a difference between the actual price and the standard price. It may be caused by such factors as a change in market prices or inefficient purchasing proce- dures. The quantity variance results from using more or less materials than the standard quantity. It can be caused by such factors as excessive spoilage, care- lessness in the production processes, and the use of inferior materials. 7. The offsetting variances might have been caused by the purchase of low-priced, infe- rior materials. The low price of the materials would generate a favorable materials price variance, while the inferior quality of the materials would cause abnormal spoilage and waste, thus generating an unfavorable materials quantity variance. 8. a. The two variances in direct labor costs are: (1) Rate (2) Time b. The direct labor cost variance is usually under the control of the production su- pervisor. 9. No. Even though the assembly workers are covered by union contracts, direct labor cost variances still might result. For example, direct labor rate variances could be caused by sche- duling overtime to meet production demands or by assigning higher-paid workers to jobs normally performed by lower-paid workers. Likewise, direct labor time variances could re- sult during the training of new workers. 10. Standards can be very appropriate in repeti- tive service operations. Fast-food restau- rants can use standards for evaluating the productivity of the counter and food prepara- tion employees. In addition, standards could be used to plan staffing patterns around var- ious times of the day (e.g., increasing staff during the lunch hour). 11.
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Warren%20SMChap22_07_.pdf - CHAPTER 22 (FIN MAN); CHAPTER 7...

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