PERFORMANCE EVALUATION USING VARIANCES FROM STANDARD COSTS

Key points
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NONFINANCIAL PERFORMANCE MEASURE

PERFORMANCE EVALUATION USING VARIANCES FROM STANDARD COSTS
Key points
Standards represent performance goals that can be compare to actual results in evaluating performance.
Standards are established so that they are neither too high or too low, but are attainable

Budgets are prepared by multiplying the standard cost per unit by the planned production.
To measure performance, the standard cost per unit is multiplied by the actual number of units produced and
the actual results are compared with the standard cost at actual volumes (cost variance)

Direct materials cost variance can be separated into direct material price and quantity variance
The direct labor cost variance can be separated into direct labor rate and time variances

The factory overhead cost variance can be separated into a variable factory overhead controllable variance
and a fixed factory overhead volume variance

Standard costs and variances can be recorded in the accounts at the same time the manufacturing costs are
recorded in the accounts
Work in process is debited at standard.
under standard cost system, the COGS will be reported at standard cost
Manufacturing variances can be disclosed on the income statement to adjust the gross profit at standard to the actual gross

NONFINANCIAL PERFORMANCE MEASURE

expresses performance in a measure other than dollars
1. inventory turnover
2. percent on-time delivery
3. elapsed time between a customer order and product delivery
4. customer preference rankings compared to competitors
5. response time to a service call
6. time to develop new products
7. employee satisfaction
8. number of customer complaints
dard to the actual gross profit