tools-for-enterprise-performance-evaluation

If you were building a new home how much sheetrock

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Unformatted text preview: f you were building a new home, how much sheetrock (wall board) would you need for the job? In calculating the quantity you would begin with the overall wall dimensions and back out the area for windows and doors. But, you would also realize that some of the cutouts for windows would result in useless scrap material. In addition, it is inevitable that some material will be damaged or cut in error. In estimating the quantity of material, you will want to provide for such elements, but you also realize that excess material may not be easily returned without cost. Determining the right quantity of sheetrock is much like setting standards in a business environment. Standard setters need to understand waste, spoilage, evaporation, and other characteristics that consume raw materials. Standard setters need to be mindful of how much time it takes to perform certain tasks, remembering that humans will make mistakes and need time to correct them. Humans must also have periods of rest. Standards are applicable to manufacturing and nonmanufacturing tasks. Even the accountants who are seen as the monitors of standards are themselves subject to standards. An auditor may be allowed a certain number of hours to audit payroll, verify a bank reconciliation, and so forth. Without standards, the tasks may expand in scope and time, beyond what is prudent or necessary. Download free ebooks at bookboon.com 20 Standard Costs Tools for Enterprise Performance Evaluation Although performance reports may be prepared by managerial accountants, the standards themselves should originate with personnel who best understand the productive process. These personnel should develop standards that are based on realistic information derived from careful study of business processes. For example, an industrial engineer may engage in time and motion studies to determine the appropriate amount of time to complete a given task. Past data may be used to provide realistic measures of the raw material quantity that is needed to complete a finished unit. Some standards are based on averages; total estimated costs are divided by total estimated output or activity. For example, standard variable overhead can be determined by dividing estimated variable overhead by the estimated activity level for the upcoming period. Likewise, fixed standard per-unit overhead would be determined by dividing estimated fixed overhead by the estimated activity level. 3.2 Philosophy of Standards It has probably already occurred to you that standards can be set very tight, allowing almost no room for waste or rest. Or, management may adopt a more realistic set of standards that are within reach. After all, standards are somewhat like goals. In playing a round of golf, most players will see “par” as a benchmark against which to compare a score; realistically, few players expect to achieve “par” on a consistent basis. Nevertheless, it constitutes a standard. At other times, golfers will calculate their “handicap” to determine a target score they plan to shoot on a given ro...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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