C1111 - ACCT2200 StandardCosts...

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1 ACCT 2200 Standard Costs  and Operating Performance Measures  (Chapter 11)
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2 The Outline Setting direct materials and direct labor standards Computing and interpreting direct materials price and quantity variances Computing and interpreting direct labor rate and efficiency variances Computing and interpreting variable manufacturing overhead rate and efficiency variances Delivery cycle time, throughput time, and manufacturing cycle efficiency measures Computing and interpreting fixed overhead budget and volume variances Journal entries to record standard costs and variances
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3 Standard Costs  Setting Standard Costs A standard is a benchmark or “norm” for measuring performance. Price standard : How much an input should cost. Quantity standard : How much of a given input should be used to make a unit of output. Note : the terms vary depending on the type of the cost, but the general model is the same
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4 Standard Costs Ideal vs. Practical Standards Ideal standards allow for no machine break-downs or work interruptions, and can be attained only by working at peak effort 100 percent of the time. Such standards: often discourage workers. shouldn’t be used for decision making. Practical standards allow for “normal” down time, employee rest periods, and the like. Such standards: are felt to motivate employees, since the standards are “tight but attainable.” are useful for decision purposes, since variances from standard will contain only “abnormal” elements.
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5 Standard Costs DIRECT MATERIAL STANDARDS Speeds, Inc. makes a popular jogging suit. The company wants to develop standards for material, labor, and variable manufacturing overhead. The standard price per unit for direct materials should be the final, delivered cost of materials. The standard price should reflect: Specified quality of materials. Discounts for quantity purchases. Discounts for early payment, if any. Transportation (freight) costs. Receiving and handling costs. EXAMPLE: A material known as verilon is used in the jogging suits. The standard price for a yard of verilon is determined as follows: Purchase price, grade A verilon $5.70 Less purchase discount in 20,000 yard lots (0.20) Freight, by truck 0.40 Receiving and handling 0.10 Standard price per yard $6.00
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6 Standard Costs The standard quantity per unit for direct materials is the amount of material that should go into each finished unit of product. The standard quantity should reflect: Engineered (bill of materials) requirements. Expected spoilage of raw materials. Unavoidable waste of materials in the produc-tion process. Materials in expected scrapped units (rejects). EXAMPLE: The standard quantity of verilon that in one
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C1111 - ACCT2200 StandardCosts...

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