AC222Chapter10 - Chapter 10 Quantity Standards specify how...

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Chapter 10 Quantity Standards – specify how much of an input should be used to make a product or provide a service. Cost (price) Standards – specify how much should be paid for each unit of the input. Actual quantities and actual costs of inputs are compared to these standards Management by Exception: if either the quantity of the cost of inputs departs significantly from the standards, mangers investigate the discrepancy to find the cause of the problem and eliminate it. Variance Analysis Cycle: Begins with Preparation of Standard Cost Performance Reports, which highlight the variances, which are the differences between actual results and what should have occurred according to the standards. Standard Cost Card – shows the standard quantities and costs of the inputs required to produce a unit of a specific product. NOTE: Standards should be designed to encourage efficient future operations, not just a repetition of past operations that may or may not have been efficient. Standards tend to fall into one of two categories – either ideal or practical Ideal Standards: can be attained only under the absolute best circumstances (allow for no machine breakdowns or interruptions, and require a level of effort attained by only the most skilled and efficient employees working at peak effort 100% of the time). Practical Standards: are standards that are “tight by attainable” (allow for normal machine downtime and employee rest periods, and can be attainable through reasonable though highly efficient efforts by the average worker). NOTE: In addition to signaling abnormal conditions, they can also be used in forecasting cash
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AC222Chapter10 - Chapter 10 Quantity Standards specify how...

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