Chapter%2010%20Lecture%20Notes.2012.Students

Chapter%2010%20Lecture%20Notes.2012.Students - Acct 2200...

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Acct 2200 Chapter 10 Lecture Notes Standard Costs and Operating Performance Measures (2012) Learning Objectives: 1. Explain how direct materials standards and direct labor standards are set. 2. Compute the direct materials price and quantity variances and explain their significance. 3. Compute the direct labor rate and efficiency variances and explain their significance. 4. Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE). Part I. Standard Costs – Management by Exception 1. Concept: A standard is a benchmark or “norm” for measuring performance. - Quantity standards specify how much of an input should be used to make a product or provide a service. - Price standards identify how much should be paid for each unit of the input. - Variances : the differences between actual results and what should have occurred according to the standards. If either the quantity or the cost of inputs departs significantly from the standards, managers investigate the discrepancy to find the cause of the problem and eliminate it. This process is called management by exception . McGraw-Hil /Irwin Slide 4 Variance Analysis Cycle Prepare standard Prepare standard cost performance cost performance report report Analyze variances Begin Identify questions Receive explanations Take corrective actions Conduct next period’s operations A standard cost card shows the standard quantities and costs of the inputs required to produce a unit of a specific product. 2. Setting standard costs (1) Ideal versus practical standards - Ideal standards: can be attained only under the best circumstances. 1
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- Practical standards: standards that are “tight but attainable.” They allow for normal machine downtime and employee rest periods, and they can be attained through reasonable, though highly efficient, efforts by the average worker. Throughout the remainder of this chapter, we will assume that practical rather than ideal standards are in use. (2) Setting direct materials standards - Standard price per unit : it should reflect the final, delivered cost of materials, net of any discount taken. [ Example ] Speeds, Inc. makes a popular jogging suit. The company wants to develop standards for material and labor. 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) Shipping by truck. ............................................................. 0.40 Receiving and handling. ................................................... 0.10 Standard price per yard. .................................................... -
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This note was uploaded on 01/23/2012 for the course ACCT 2200 taught by Professor Rose during the Spring '08 term at Kennesaw.

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Chapter%2010%20Lecture%20Notes.2012.Students - Acct 2200...

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