CHAPTER e i JOINT PRODUCTS AND BY-PRODUCTS LEARNING OBJECTIVES ‘Upon compli ths cape, you shod bl to + Dis jot cat and tious thom fom conosco 1 Discass te appropriate meted for he slo of joint coat Yo jit procs ‘+ Discuss he appropriate matte ote costing opr, 1 prepare the dren ino stents shoving ibe reenact revenue omy pod ‘+ Dass hots of joint alloaton upon dsion making Join pode a ndvdal pods cc wih gies ss vals, which ae proked-simelascasi for hy oe nasi ard Sine anche {occ Forcxapi 30) boa ol an sy be ct on pric Wc fom the prcosing of 0 boos. Jont poe so osu he mest pag {nt anda many tra ee eho indy Te Choco ta pose Sit prafacs fac aps resp hat yes sttanowe carmen vocoing Proceing of of the Jot odes tanks dh ocean Sr jolt pce When adil quate fone aot pict ae se, the goats ofthe er ort pradl wl incase poportontl 2. Maputo jon prects ast ae spt pol st which pea ahs cere to be sold ar ier proces fe. Cons cure eth {art pit do na gona case aiseaion plone fesse ey ane oad with ih spec prose. ‘None of th Jont produc sinc gretrle thn he aio Brodit test sara an iting Jom proses tomb fone Joint costs and the Split-OtT Points Seis cont shuld ot be tought of 9 “Ta ep prt ots ta dy ‘Sati of dct matorls est ber and focor”cvehad A mao afi Into joi cn stat oy se indie Peau Joe cost emt 358 Cost Accounting special ideale with any of the psu tng simutanecusy produc ‘asic procsting cin, stmcimes tale separable cos, ae tncred by Invidalproducts ater they have emerged called he split poln) fom te ‘Smimon raw materals andor the common ‘umifcrrng proc Addons [rocerng cost simply consi of the addon Se miner, die abor and ‘Eco ovecad incr forthe estate products for he pic i ona 2 eft coe winch ee caret ta Octo al pee rte epee pose ‘Outpats ofa Joint Process "jt press predecs moe than one produ in A produc hat bay a sale sue sulin om jit procs is casted as (I) oit produc (2). by-prouc 12) sera. doin produes ar the primary cpus ofa ott procs, cach jot ote ae stant revenoesearating ai Jon products re he main Teas ‘thy a company ers in he prosuction procs, Thee roca ara called he ‘ann preduets..On in oer tank, By-product and strap 0 tom at ome Os [Redon ote jun procs. Bhar sale, bth eval oe woe ot (sui foe managment ous unde iahing i ous proces For exarel, Dunkin Donuts wll never under take dott manfacaray 1 senate ouput holes (ance) wid customert. Bacolod Soar Ml Would neve ‘Serate sear cane proven mpl to pools means vrs a company cam change pdt clasiication bess of changes in ‘eononomy, consumer demand, of celoges! fsors Some prose ong Goeme eryeeenely eG uuean Baie samt re oerpereccen ‘Ses se sld Goer raver ply compar os aad best, bt ton they oe ‘Bids pros mara eter par of a cack. Some produascripaaly tsnoed ‘S seap cy be relasind as by produc. For exanple chicken eta fo Boed ‘hd bend maybe cased ae by produce whl et they were atid a ap ‘CHARACTERISTICS OF MAIN PRODUCTS {be produce mus bs te prmary Object fhe manufacring operons ae sass re be eae ered Pe Je poate, etme pores 43. Inveae of jm products, the mamwftuer ait proce all ofthe prods through sammon poseChapter 11 Joint Products and By-Products 359 ‘CHARACTERISITCS OF Bv.PRoDUCTS r “Theprdiet notte ply ober ofthe mnulctring operations 2 Sales value ofthe brads I sonar Tow as camped wih the sls ‘aloe ofthe main proc \ccours NT Sipe cots mst be alloate 0 evil products non ty dene he ang work in poses an ished Enos nso, ant of ode manufactured fn sol and gees roi. As maloned eae pic cficaons mot poste ‘Thar. an aprepeate meld mut be sed locate a porn ofthe jt ss {individual jot price Thrse methods ar conmnly ued fo oess ost sane ‘The pial ou! metnd is bss 0 volume: he sbar 0 on ma as ‘market ale tpi rtd andthe net rand ae med ‘Phys out metho Average un cot hod 2. Mate vee at spit tho 3. Netalcable value etd apposed matt valu sito) Problem isa theaceuntng thos fr min prods ‘The flowing infrmation wavalabefor the Galer Company, Join Casts amounted rary Units Disposal Vat Addins) Fal Poti Prados! “Cots Solar wv ‘a 25000 Paco “PROD “PSO PISO B34’ ‘uoco” 7.00 aeo toa © 20m “Som "930 38000 1.00 Prysiel Output Average at som mead Und ths nod be quay Op eta fr allosing jt cos Tee guy of cue eps i ny wich ma bos, ay SO Sorte neanrencrt Te jum of Gap he out poise ae stated in the same scale. on ete oie coat i allocated to cach product bya rai font pr pod over teal ‘int pavet mule by to ou cast 360 Cost Accounting, ‘Using he nfrmato fom he istrative problem, te following join cot allocation mate roti A=28000 x 164000 = P 6000 000 Prost 832000 x 164000 = 68000 2000 Produc €=20000 x 164000 = _sn0m 00 ees. ‘The al prodaton cont of poi are computed lows Units Cos. Starein ational Total Production Product Prodeesd PecUn Joi Cox Proesing Cos Coste Sd 2 Pes6co) PF sDMOP dgo00 B 34000. x00" 30.000 000 ¢ now stag —_si.aa0 25000) =o isso = “Buso E2900 Unio is man smal alta raed Wy mon ton ‘hold be caged a propeone share oft joint crt bated ofthe tune the tits predued The most appealing characte of hs methods spl, mot is aeferacy. The major divans of sloating jot conte onthe bas gusty produced eit the evens precitg ability of ths padi nt conse, ‘Market Vale at plit-off method “This eth nt poplar sllction metad. An arginine this method i that the soling pio of preditsae daermined puma’ by Be cose volved producing the products Thetfors, o proc oss shouldbe alot on he Bis ‘ithe mario of te nda! produc. ‘When the market vale is taow at the spi point, th toa joe cons ie allocated cry the joint pots by ving the tot ark vale of joint ‘rodt by he atl mae alse ol jim produce tare a rai of mda ‘itt ver steal mart vale, Tis ae thee lp by tel como [eine ah jit cor aoraon sac product(Chapter 11 Joint Products and By-Products 361 Formate Tot cout alestion “ot mart vali fal proce The formule appli to dtomin the amount of ono 0B alla 1 cach est rode Prost A~"224000 x 164000 = 56348 Product B = 238000 x eno tom = 593s Product © = 190080 x 64000 = 47791 ea “The tl prodacion cos of prada are compat a follows: Unis MVat Taal MV. Shas in Aditinal —Potcton Pool, Praiead Splice M30 Jam Cont Provesna Cont Coss ‘ako FSi Pa2o00 Psosu F s00” P loasts Show "7a "2iee00 sinss "30000 "wanes © p00 980 jenn arm) asm nc Foszpoo elon Elision Eze Net realable vale method (approximated market valu tsi When he market selue i kom a he point it shold be wd to late be Joist ‘oats oso im the provost Seample Hanever, some ees 3 he ‘alse cmc sable® the spice por Tobe able adel proces co at tore When ton ain etfs te bet rere tall ja ‘itn tet raul med (approumated mara aoe 3 op-of. Uet {hatin amy stride proven and pond eon fe ded {he fil tly tale. The out ex section to each produc compute tse ok also eno pac Toca promt ool NRY ofeach ardust. Jo art Teal SY ofall 362 Cost Accounting, ‘The forma jot poe lind to etcrmine the ameunt of jit cot obo allocate wo each Probe A = 268000 x 164000 = 53,797 i 100 ProdectB = 20.000 x 164,000 = 62,027 str00 Product C = 240000 x 168,000 = 48,175 , “The ttl procuction cose of proc ae cmt fll: rosie tds yo Ovo en pg ganas Units Fal Tei AGT Dispel Stare Tal Biol, Poaiaced MY OMY ‘Cox Cot NRY ini Cons ‘A ZCO0 1130 322000 SUDO 400 268.000 S297 1039 B Som taco 400m sn ‘saa zoe 1400 000 ison Ea wero. aH ILLUSTRATIVE PROBLEM ~ (no additional procening cost) Allocation of {incon to joatprouets Frais manufactures the joist produ fom join process, The flowing data ras oopcratons of Seer Products Unie Pratced MV at Spliff a S00" Paco Bom 500 Required: Allocate hit eos of P 42.000 sing TS Make ate method 2. Average unt com thaChapter 11. Joint Products and By-Products 363 SOLUTION Th Marke vale metbod uy Twict Unis SO. ToL MV Penge Shain fmt Cos "A Sou S10 2000 Go PaSa00 B 300 soo temo manta © 2000 son ing =r 5.000 00 F000 “Te cmptin ofthe pecelags may be dns ai dfreatmcthods The fest rho sto cede the market va of cach prfut by the etal mast a: 427, 17,1070. Ihs mated sus na preriage hat ae ox eo ten te be ‘mend nay be se 2770-0. The esl peerage une Ue secon ba ‘scaly he cont rate, err, the ges oft ae for lhe pace the se 4 2. Ayenge nit cont method Ria UnigMreducd Avsags Una Cox StasinJoi Cou x S000 ae P2000 a Sa sm i200 c 200 an ey ‘no00 eon “The sverage unit cow compat by dividing he tal joint costs by the tal ua ries 2,000106c00 "420, Fortis problam, nas muchas the prods resale at at he pi pan, wwe wll ot te he at alae valve mtd ACCOUNTING FOR BY-PRODUCTS. As memoned bef, Wy-prodics, lke aia produc, ae produced tram 2 amon raw mtr andr common manufctring process, doi costs ae pot Aieety raceable to citer man products et byrpreducts Since by-products ae prohed incderal tothe proesing ofthe am pred, allocation methods ier Sem oot sed for man rout. The metus of costing promt all to Wo eos category I, in whch byproduct arercopnized when sa nd catenon?, Inwhh by preducs ie eognzed when prodied 364 Cost Accounting Caterars ‘Be protuets are produced indent! only to he proctsing ofthe raw materials se pedi th man procs They are conedeed of ir nporanes and ero ‘ncn ecordl fr hen lhey are 18 Net revente fom he b-prodch 'S computed by deducting foe acta sale the acti addtional procsng tesa murlaig and administrative epee, The oe even may’ be pesested a ee 2 ier income 1 Aasiion ales even © ein fam he cost of gods sold oF the main prodact Under ie method, a By-Proiet Inventory czas i not sep. Addon processing costs ae expensed when incr snd dopo coats ae expend Bo fin ofa When the act byproduct came & sian, aod therefore cowieed importa magement Way conser allcaing Jot oat the be peda Tae {sfeced valve ofthe by produ Pode Is shown co the icone Game 263 ‘tite fim te taal prouction cos of the mn products produced Theat cst ofthe main product is ice foley hs expel vate of the bygesart Froud The two methods to compute th peo smut ofthe Degrade Yo be Ade foahe prouctin cvs ae 1 Nereis ee mc 2 Revert tod ‘Ne reliable value method — ud this metbod the expecta sles vale ofthe by- product produced is reduced by the expocedsddieal prowling, cous and ‘atketing and administrative expercs, The roting net reliable al Ofte y= rout deduce fom heal prcton eos the mam product Reversal cot method — unr this method. the expected valu of the by-product prodiced Is relied by the expected aitonal procesing cost sling ond ‘mii expres and noma res prof ofthe typrods. Ti i eal the {vera cot mahod Bocas one mast work bachweed fn the gs reves to he athe Sissel jo et Wf he bait a the pli pum. When resin ects and normal gross poof the by-product te dated ‘fom aos reves, the remains portion the xed cout Cf peducng hs Bye dt upto iro pinChapter 1 Joint Products and By-Products 365 “Tho joit nt alloc to the production of he by pada sds om the total prdectin crt of fe ae pod ad haya to yuo! Inencry OLE, Gren Sprite Compary pode profect XY from 3 poses lo vss 9 by- rose 2 The by produ roa P 00 sana procesig cet. Thecompany ‘seed to che the Jolt suse AY" "Tse by ptt wl fous sling and ‘miitaine expemes of P00, Infrmationconeoming batch ped Samar 2011 fotows Padus UnisPrabes! MVS Uns sold og ‘aoe Pico aba Zz 21,000 1001800 “The cote cued wp othe split el poi a: Dee east P 134000 Deca te roo Faso owed 0.000 Required Tame saeneats showing the et revue of the By-preit wing te ‘iron mao ft Addins! nes vem Dato ms eon of goods sol oF XY © Ofwrimcome 2 Income satomem showin te ost rine val of he by-product as, edt fom he fot mame conte XY soLvTion sales Main produ 1 scn000 Bye, td P0000 Le: Con of Go Sold Dies nels 129000 Dest aoe onou Faso over eas ‘Tormamaacunas cos | 340 00 te Taveton aan Sts hoes Past ESE Sling a admins expenses 366 Cost Accounting “The nt evens rom the by-product computed as lows Sake > 15.000 Toe: Add! Pronaning Cost P4000 ‘Sing an admire wens “1000 — $000 aves, Fanary 31 40,600 x 10000 = 60.00 S00 Rat resene fem byproduct shown deco rom ont of good old of Sale P 400000 Tos Cont of Goode Sold Direct mena P 120,000 Dire inker Ton.00 Faery overheat Total manufactrag coms 300.000 ‘ss: ventory Janay __al;ton (Cos of posal eco ese Rene fom by-patct_—JE000 ont prose T9000 ese Soin Admire ‘00 Sake Ss. ContofGoots Sid Direct materiale P 120000 Dies aber 1.00 Factor ovricad Total maraticutng cose 30000 ‘ess veo, faenry31_“61000 ano rons ros 79000 Lis Seling and dminstative 00, ‘eteparsing come aD900 ‘Ads Rove in y-proact aoa Ne taco EsoChapter 11 Joint Products and By-Products 367 All thse position under Meth rela the same mont of nc nome ‘Tee resco onthe nem sate wil no atest thar of icone. ‘Snip unr Method hath nt acm lege been th tl amsacaring ats na doctaed aed areal te cst of he ven ft ape ‘etd ad hi nod tsar a rae 2. Net revenue from by-product shown as deduction from lla manufactering hat of te atin pre ‘es Fs00.000 Ue: Costof Go Sald Disc mates P 12000 Dict sbor eam Faery Ovehand 000 Toalmanacaring cost 300000, Tear Reve on y-paae_1000D Netnanudewtag cox FOOD ss Ievety, mary 31 S400) Poe) ‘ees prone st Tear Scling and Admunttve son Naincome En ‘ILLUSTRATIVE PROBLEM. Moni Company mantic profoct MN fom apres tht lo produc:sby- rc and byproduct K. "Te following pera to operations fr March, 201 ey Total Unit rcs m0 6000 4.00 nono Saks pct P20 p30 278 nas sie som "ese "400013000 ‘Seber oe pcasoo P5700 Pas00 P72300 Seling ad 32000 2300 1.000 35300 Desi rot "20001200 Star of the Dyas in the jit cot of P50,00 ating reves cont nebod. 2. Income saterefr the main pred, MN andthe by-prouc J and K 368 Cost Accounting, SOLUTION: 1 Shae by protein te jo con ung rel nt eo sales P1000 tio Use ‘Stbsequem co P5700 P 4300 Ssling ade | 2800 “ao Desredprore, 2000 0310 1300 __ 60 sagem jen cos cam eas [MONIQUE COMPANY. noms Stemect x the nh ede March 31, 2011 Sales puctiono 3860 11,000 P1800 Tit Cort of Goode Slt ‘Sh ninco sqm 7400 Seine oe a3 _s100 Tat ifs cost ioe 13500 Ls Tovey im ont og ld acon 1500 Gros rear a0 — 4300 TRE Sing 2 Ade sian _ 200 Natineome Piao Fhe ‘Supporting computations: ‘Costin = 100.00 10,000, = P 1000 tevemory = 2000 waite? 10.00% oct by-prodts, the tots manufacturing conti he same a he cst of gud old ‘Seca allunts pred dunag the penod were ls old dung the period. tbe “Si podced fe ihe pon wee oat oe he nvenon Wl br comput by ‘isthe total manacatng Sow by the teal ants proce an the rong a ‘Stl be malted by te unit remaining nth neo.Chapter 11. Joint Products and By-Products 300 Atcaon af jit cor using markt vale method ‘Subseqeot Realzable Stacie Prost Sales Value "ema Enctinas Joi Cot NN Tet000" no ono Srmate? "ai se0 Bey ‘18pm “S00 2300 asitle? 3370 Bek 110. 4am mo emis). ison m0 tiem Enc EFFECTS OF JOINT COST ALLOCATION UPON DECISION MAKING. rT loca of ot cit dine nny fr pnp ef rome eating ad stood mot ncnce management im i pnaing ad cn! of Jet eos and cine miking, Deanon salung, scaly tavolee outpet decane feet Prosscngdoctton and psig cai In oth of shee, jo co allacaton snl Tae IMermeton Tc vey cure of mare pss tel Eppes Us esi of docs When the produce mamaitwed ae property sed {nis ative tocchether 3 deamon o produce more oes fone recht wll ‘Sah snoportomicly more or fae otic ib prot Thorfore, more usc |SEemate 2 obund y sononrie tt ap Cost wth the pte revere snr from fl ont. Wh he proce on be produc s aeraive or ‘Srimior he dsl brad on wih se Sb the most ro To this ae Income incon ro wld) Tos joo xt allocation fas infact the Atcston wither to sl athe pitt pot er process farther A deision press lor ape om tre sane eth ls vale ree at he son Sat Wo pecss ft Management dso shoule teefre be fase! or Sporn Sone! te sean oan conc ay ed Chapter 11. Joint Products and By-Products 31 SPR Raaays ee IER Gwen Company praaces four oi products, which havea manufacturing cot of P Von ate pct ne, Da penn ese echt ae ae alin "ask ve ‘Weiekt Fine et eee St 8 1s 52000 3s ¢ 30 36000 50 D 27 2x00 60 Regret: Allston con seg, 5. Weghed avenge method Problem 2 “The Meadows Compan, produced thes joint products ata joint sos f F 132,00, ‘Adina format for rect pra om Sales val and Adload Unie Sales Value Processing Iprowsed Produ Produced tsp. ‘Saks Vahe Add Lest ‘2. 13200" Pseo0 Piigiow = “Pig.swo 3 "gio" 7700 33000, 13400 Cts 55000 ‘6.008 1009 Regie Allocate int ons ing 2 Physealunie Problem 3 ‘Atchor Company manufactures thee min procs, A, B, and C, from 2 joist Proce Jon cote a alice onthe base ctmakel vel pli off Adahdon Infomation fer Jane pation flows: Be © ‘otal Units prosuet 5000 sag00—1am0 100000 Joie este 480,000 Sa val at SO 420.000 »270,000 730.000 ‘Addcostsifprocescal "88000" 30000 130,000 Siesvaue epocened’ 538,000 22000 336.000CHAPTER 2 STANDARD COSTING LEARNING OBJECTIVES ‘Upon conpletin thi chapter sow sould be ble to ‘Def andar and discus how hey ar developed + Esplin the diecnee bacon tu, sora, al stunk coving UUniertand th ses tnd cing ‘+ Exlan he enlishent of det motels sands, et aor standards sacar ovrad sansarss + Conpute be dest mata pce variance andthe dst material wise 4+ Compute te dct aor ate varsce sod the labor ficiency variance Compute factory oven varans wing the om, tn hice a for Way {In an acl cos systom produc cot ae ely recorded whey thy are ina ‘This tohrigue i aly acoplble fer he cord of Sst mae and dee Tiber beans tay can bo say toed to spas jy Gee kr cst) skpanment (proces costing). Facur evel, ths ines cost componatso'a Drofuct, usualy eamot be cay tac! Yo a specie job or department, Sone ‘vasa ie ot a det cost of prodion. a odicaon of an acta ont scm ‘led normal cou, convolved) Under name dct mca ‘dct abr cots are actulted a hey ae iced wth ons easpon acy ‘vethead is appli ty predation cathe Ear f acta pt nts tons ‘multpied by a ptedtumuned tory overhead aplication a” Umer stand Coating all cout tac to pee ae based on sisnanl or pede ecu. Standard costs repre! the “pam” cote of 3 pafeton tl as erally esllsht Wall ble proton bei, The ethshment of sus this provide mamegencit wih pels to atin (e~ pling) apd. bases or ein wil acted els Ge = com). Stand cons ae thse expected to be achieved in & parler profcion press undernoted. Shane coring concn wah cet peru sol fees tally ae sine purpose ae a budget Badeas, bowen quai Shanon! espaton om of a ofthe han nem of po uncon Stand css donot elie actual etn cortngaebimaonsyen Tstad SKadar asl ata ess a ath accom 396 Cost Accounting Standard costs are sto known ae plamnd css predicted cos, shaded cor and secfisbon es Este cot are iret fom stand oss boonse ‘Simated cots have ioral been usd as projections of what fr init cows will {tore sid, wile standard costr are what sunt cos of produ should be Ate ae es eee ee sec a eee ease tae So ee ee Ee Soe aa eee ee ee ee Sees see See Fig 12-1 Comparison of Actual, Normal, and Standard Costing, Actual Normal Standard Costing Costing = Costing Cost ofa product ‘Dvet materials ‘Actual Acta Standard Direct labor ‘Actual ‘Actual Standard Factory ovechead Actual ‘Applied Standard Sandu costs ae uly dkemined for a prado one year and ae reise Smal, Honore He cltanaios ding the Jer inate ht andl {Groves or is sic change hs cosred in cosa ot othr red factors ‘mamganct shuld nt boat ate sana acorn USES OF STANDARD COSTS Cos: infomation may be weed fr many different purposes It shouldbe ated thar conformation whch serves one pupae ena tot be appro lx anther. “Theva the purpose for which cor information is to be ed shel be clearly dined toforepresdars me developed to namaste cet daa. Sadar cots may toured Cost coat Peformance spats Cont anarenes Mamgonctt b objectivesChapter 12. Standard Costing 7 cosT CONTROL (Cort cont ofr ening a Zot with rated bans and aking ire that the con is sfied given the Genie derived. Standard cose rovide sey ‘ef too fr con coer “The standard oto 3 prodci maly compote ons prunes, This stndnd ct thon sed Lo detain te cost of atifctacng any: omc Of es ty ‘mpl mall th tll wnt rues the sand un Sst Ail cows a Uc compared wah standard cots sequent as nosis, haber ont, wes. dulvor fora nate work shift With tine porormance, por, manasa ean take action ors to contol polons sth’ ar Uansoases high eoss cal pandstecse without sasdard costs PRICING DECISIONS Presa sablished by business fms to cover the cs fs prec nd the same time pros fe profit Ascuascoarmation mate ho ny by prot ‘tpaniztion bt also by noefororguations to eee thor prods or ome Sin and wis opaaoy guidlines. While acta omy Secretly the cvs involved in produce goods of serves thy donot aay provide consent and "mals ttarmaion foe peeing Stoard ces provide a manoe of conn) by ‘hmiatingMactiaon ss atal cst suc a acioal cm fe somes ra tara ‘or vadom Muctabons sich as wnexpced owt changes m world markets Since ‘Simpanes now ae opting in compote mart beices via to generat ‘rete and inci oa inferaaon ring epost or serie, Sond ‘ht provide sine) ifm PERFORMANCE APPRAISAL ‘When saniards are csabished for pefrmanse appaisl, they prods measurements tt can be appli tainly to all ported! eing evo, Stndare provide nec he fow objets muss of efomance eslation, Fore sands 0 work well thy mst be underood by the pepe eng crafted The “emplyse shail alo inow how ke sanded Sr cpl cation ed Fesard syste (COST AWARENESS: The primary conser of maby manages af esa inceasing production, ‘improving prot ality, and rolacngsbcnccum, Aihugh tes a important ions cach hs sonic cost comoqonce hich tages may ole are af ‘Standard cost peroreance reports mor manag of he tet enplestone of ae coe eed es eat else Uae elvan le 398 Cost Accounting MANAGEMENT BY OBJECTIVES (MBO) Mangement by objectives means tht specific cjecives re xtablsed foreach usin ati ard te manger response for tht act works 0 achieve the ioccves Whet an adi lly uh tbe acceptable ponmaace levels, ile ‘omgeval auton ote other tha futinespersen. Whee peformanes ‘Sores sancats fon accriable vel, the manage tno cern the problr ‘ang sopropeaie stone. A undad cost stem fitter NBO evane povies a quick erence for Mentying and reporting erences betwee Saar Sed acta performace ESTABLISHMENT OF STANDARDS ‘A nro ato any standard eos system i the eating of stands for dct ater, det abr and facta ove DIRECT MATERIALS STANDARDS 1 Diret material rie standards ce std fhe un pce at which dsc materials shoslé parcial ven thongs ater eo est on a por unt bans, management must sil esate ft alo fo ext pei before indivi standards amb {Twsle fomear of wma importance eens lft determine te {cal unt of shod soos tat wil have tobe proaiced and then Stemine the oa quay of dec eras tat wil ave be purhaod dung th er pts Mecca wl i seni ease ecoiat b ‘ss of mcasng gums of cect materials expe tobe ode forthe ‘ti pete Oncethe quantiy tobe purchesed hs teen dtemined, ent ‘urchase ric can be essed te spl ‘Toe cos accounting department andor the purchase dearest ae nomally scsponable fr suing th det material pie Sanda ince thy have ‘als acess space data od shuld ve Knowledge of make conditions fd oh rlcvat ctor The purchasing depronct 8 responsi fet {Savaonng ripple to Seen ich supplier wl give the Host pe at the desuedqualty level and wihin the constant of delivery and eet “The stand seting process fr dct mat can be very tine consuming pecully for large manufatarng companies that mast se Standart fr ‘ares of creat meters Whe mre than oo duet material ted fora prediction proce, manda it price man be compute fo each ‘nvidia dees maraChapter 12 Standard Costing 399 2 Diret materials nage (ficiency) standards ‘Eicon (Quay or sage) eandarde a predetermined epciatons of fhe quantity of dict materials tht should go Ino the production of one red uni. If more un ane det mate fe tqured wo complete ctl Indica tangas moat be compte foreach ice! mata. "The umber ‘ot ifereat diet mrs sd the rete quantier of each rized to ‘Somplte ane unit ean be devcleped em engineering sais ana of past, Spm ung dsepne a su Tot tm r soe “The ensinering depart, becuse designs the profusion proces ie in thot pontion ot really stanable mates ands DIRECT LABOR STANDARDS. 1. Dist abo pie andar ic ec) scree precteniae e for a pve. The standard rate St py Dat an nial wl roscve i tcly base on th inp fj bong rome an he experince di the pur ee ha on eo. the waa far of mest minfacturne sompance Is cul set fh to anon Son fa on hp a vasa il oly De teed [agement i comaation wt the haan recess GR) department ans sect py and GL fy uly ot ed te add fe of pay beet the are-nonalssecouted for 3 pat 9 fry etal 2 Diet ior eeiency standards ‘Eieicney sandr re pescrnine pxfonnance sandals fo He amount fdr labor ur ashe got he predation f oe shed ‘Timo and movon studies ay Hopf ia dvelopn duct Haber eMitees SHondard.Inthee stain an avs nade the rowers fllomed by ‘Workers and the conatons (spec) tompeatre. equipment. Tels, ihe. {He onder ich works wn peor asm sks Stic fave shows thatthe ascrase te thous) segue fo complete one tw re at nto prc Ro et) or ne ‘agro pode on ai wil wal decree ax workers econ oe 400 Cost Accounting fair with he poses. Te et of the ing procs en wer may fe viully shows in whit tsbealy called tr earning curve The Casing crv sted on ate Hndings nding tat a th clave ‘anbet of unis produced dbs the average et abr tine requ er wi eosens ata conta prong (orally ranging fo 10% to {fo Toeaeprcsazes are common elle ot reduction percentage. ‘este terra std drm ie pentose toa apcc prediction posse Th prio in which Ge cut per oat ‘Snitts own sth contant period. Aer worets hve bra i the ‘Sosa sage for long pecs of tine i pole at prouctvty may St dostne beats th lenge and Gcotenent of eaing 2 Bor frouction proce ae ove and Borecom sn Many companies rutiey ‘vostro dice job seigamae as a ingle td fue mans of evan toed om Svc In demining standard eos cr paring bude, une there is complete ‘Sonat, fig toe the rig preci conieraton may elt in Gmemus efficiency anda st cold hove adverse effects on anger den ns Tine and ion cagincrs are wally sven the sesponsibity fr scting ite abr fin snare The engines shold ave a theron fotelge of he produto proses fo complemen thar kaoweae ofthe Keelngyes of tne. and schon sides My are companies, ve ‘Cynon sf by engine deveted sll fhe establishment of set ieforeficny sind FACTORY OVERHEAD STANDARDS “The const of sand sting fe ctor overcast 1 supdard ‘hing fv tet eels a ec abo Honeve,aboops te Base ‘Sous sar, te provost fo compat sana ess fer ey ered ae gute dient ‘On ssn forthe eens in poets the asf tems comprising Ihe iasry ovrhead cont pol Fry okra ics inet mara, [rear or and al ti inde omafacenee cots as acey Alpcnton of Tato supe, ce Theil oss tat make {Rasy eta ae tec aera by increas or erst inChapter 12 Standard Costing 01 ise sev; pending om the cnt tempat ati any case 2 Frportnate change (arbi fsa ovetaad ext) 2 Lapoportonte ‘Shang ited tors onto cat, eno change (fst vend ‘Seo ator osmand eee ‘When orepanns Acton’ oveimad cost estimates forthe net pint [irpion mur lo be ads abst anges i ct 84 Sa of atom teroclog shan, and ples doco zai porta same jester Badging tery eed ost eqs care as fp xpos, ext setnomie cents, std ee pra da, toe tameeal abot posable prediction ext pei sity ved When demi 3 standard product cathe mean reposting ft ‘veel cot scart in sorble an Fred oto he Sorabe felon crerkaad cove ll san in dee peporion ih the frocuon eck ts vals facto ovsthead pet an wi mala cons ‘iin th leat range Theta fed onrhea cont wl ria cone ‘ver diffe sty Isls yun the leva ange, vibe ned overeat Suet por nt wil decrease spac nase andes 2 reaction ‘Ecc Bose of hx contbelavor saactrn the application of 3 ‘lad ed ory nec cant cach prod! Beams a prcbem whet ‘rosin est ‘dacs are commonly wed in coun for ocr com Poe 0 the pond a qurton a bade! hat shows atic ary Orca eos {peared Aero ton overs ets ae far eopared wi ose oad as a seams of rating marge erforranes, Badass may ‘ther be ase celebs, State budges sb ated cons at on vel ltctiy ony Fesble badges show aripnted costs at eat ci) Tost This prepaton of ube budgets eit the problems asst ‘wit sats Dagens auton in products ach VARIANCE ANALYSIS, [he ofthe major pore f wing a andar eats) iw ad managment incontling o css of redstion Snide emble manger! 0 make psa ‘marzo of sean als nl stand (or planed) res Dieences tht Hoe been aca rer and planet rire called variances. Vanance ‘Soha issmsigyht cn te weal ty management to mest performace 402 Cost Accounting, correct inefiinces. and deal wih the “acounabity function". Cost eewtsr Iranagers ent te proton spervioe who dla aston oda fore agcoutblity con be seed of manages, responsibilty fr cos mast be lent eed Responinits force shld be ssened oly fo be parent ‘eco cutting to authori ns the cot When authority deste by hyo leet momgencnt 0 middle or lower lel manager, hey wal bo Bald ‘Seoul fore partormance. Tas wion may be ayranmed 3: flows Upper level management (delegates) Authority signs) sibility (requires) Accountability DIRECT MATERIALS VARIANCES Direct mutes variances may divided nto (1) price variance and 2) efcieney forage vance Direct material price variance — The difeoce bawoen acual price per ‘iat of Sten matctals prose end strc price pr unt of det miterChapter 12. Standard Costing 403 Dd mal ins wa) ns i be ta iy of ret maa snd Sundard qty alowed wetted by Sind pe or wt ei he ect marl eiccney vara San snc tha al ed ay drs ae ‘utes yeas potcin (fe nec) ote cored Qe. Aa oof ang he and pe por ta cel oes aren th fet Of pce cage as Ess Cm Te i mal Se oe! tb aac io eee ne pati of pt unified Uy phasing derma pee enc tice The poscion pum & Sn an tcc Re epee ct mano pron pst cede apna or DIRECT LABOR VARIANCES. rst ae vrs may bedi nt (1) pre vrs: al) finy Direct Inbor rate (price) variance. The sien ttn th aa Ils wage fate and te sandard oot wage ens the dis bor price rnc pr hes. when maliplicd bs the atl des nor bows worked the once i ih tal de abo pres warance The aul num of Geet ier wad cpa te ard et be hn sloved td becuse wea anayeng the eat ciferones betwee the parol hat shuld ve Bon incited athe sca! payrll hat was cura Dot pelle ae [usd ante acl numberof tahoe haus wor The sapere of he siparinnt or cos center whee the works prfrmed held accountable fr Seat bor pe varies, Direet labor efficiency variance. The difernce baton the set dect Inhorbrurs worked and te vans det obo hove alle mui by Te Stand hur wage rate, opine th irc abr efcencyyananes. Std Standard nce he posible causes of material price varie are 2 flows: TP acuatons marie piss far 2 Furctasng foo iat sols fling i ators tanepotin co 3 Fale to sta of cash eeu ‘FParcaang trae fr quly ‘The posible canes of material quay variance "ss of mtn uso poor and Use of east or subatndr aras ack of prope tol oc machi Sporn ete doe o ue of fo quay marie 1 Lamon vaniances “ator ae faa Tabor oiieney variances rte to the sane pie because nike murals, nor series eat be purchase i me peo, Hed. td ‘Bem the nop © © ° (aHXAR cailx sey (SH xs2) 1 * Labor Rate Labor Eficieney mins) @) ian TOTAL VARIANCE A Labor Bae Variones The bor rts rane caus by paying a ihe or owe eof py hn Sadar precces pedacte complete a proce 410. Cost Accounting Formulas 1, Laorsmtsvanance~ Asta ours (Asta ie ese ae) 2. cual baurs «Aci te ‘Asta hors x Std * Late a arcs 3. Acme ‘ese Saad ate Ditsence nate Ail bus Taborrmte vance REEL Bue B. Lanor “The Ibo efieeney sarc eausl by wag more ols tan the standard mount of aor hous proce «palit a capes proces. Formulas 1, Lato ecieneytaiane ~ Standard rte x (Aetual ours est ‘Stand hous) 2, etal ours x Stand te” rs Std houa x Seda te = {ater ciety vara = 3. Ana ours cd {eae Sard hues = Diterocen hours od ‘'Stodard te Labor eicieneyvannce sca owe ened on is: Standard hrs alowed (0,000.10) — S00 Distxencen burs ‘00 2X Snr rat po aur ets Labor tency varias PIs 12. Factory overhesd variance A, Tmonariance method Gone ates ‘Atal faci oveeaé Pio {se Bodgt allowed on standard hows Fad _a.000 Nabe (5000x105) 38.080" 19,000, Console varasce utaerabie ca 2, Vone variance ge loses on ena ours P 105.00 Use: Stand rex Pst overhead mts (san x10% 35) soo Volume aang favre 20000 B, Thrsevarance method 1 Spending vases Rel coy ovrhad 111,000 i Badet allowed on acl hours ad P00 Vanable (00x00) 30000 10.009 Spandingvananes unfavorable Batt 47 Cost Accounting 2 VanableEicincy variance ‘Bact alowed on sea Rous P L¢000 ost: Badg towed on dare hors 103000, ‘arable icine) variance untsoale Eso 3. Volome vias ‘Budget loved on andar hours 105000 es Stes oy nea ie 125000. Volume rare fvorba ean Four-Variance meta 1. acl yarable aco verbo 34000 {es Aca hors «VO rte (6.000 DLE, Xs) _ 3000 ‘Variable spends voranes e.a000 2 Actal hou x rable overhen te now as: Sul hous VO rats (9000% 10xP5) _28000 Varable efficacy anne ee 3, Acwal fredoverkad 7.00 as: Budgeted eed overhead strormal capacity 40000 aed spending vance (e300) 2. ndgeed Fed outa at noma apy » soc00 ss Su hous heed Hats (3.000820) LONGO Noto varace| ee JOURNAL ENTRIES. 1. Materia ventory (200,00 x 1.0) 200000 Mateal Pie Varance 0.000 “Ascot Papal (200,00 xP. 20) 2,000 2. Wot in prces (0.000 <2) 100.000 MateialEtiioney Varianee 10,000 ‘Malet ventory s1qo00‘Chapter 12 Standard Accounting 419 3. Parl ‘crue Papel! 4. Workin Process (5,000. PIS) Tabor Eticey Variance “Labor Re Varin heb Payal 5. Factory Oversad Conte Varios cet acne Cost Accounting, 20 Tare ct: olin 20000 F 6 Weak Pree (5,000 «P25 125000 Segara Toon Oren Apc rae “ot ovrhed rinse (P 14900) 21. Factoy Ove Api Hee ican Ore Clie Varnce 20 aay Orstesd Wome Vance Ae Fsog Orotad Cott 170000 ows ae ae f vesitic | raed f esicency [Votoms cee | Seed | Sending | sence tance ‘cl fon ovate) P1100 | Varnes | sariance esos ue] Fe cee eel tae ee “Total overhead variance ( P 14,000) F Toor onl ins hire Pano p20) Tealevcea aed (P 4000 Fm4 (Cost Accounting SERUM ee iee one ce tee Problem ‘Youve been ven he flowing information of Mishel Corporation forme, ‘Acta labor our wo Ss hw ‘Sad water pce P2sopereat ‘Asal bot ate pat 300 Sed qunty of maa wed 4050 ar Stn or oor eet Sober ‘Aca teas pe pa sap ‘Stl ar rate per oar P3i0 ‘Aca guanty fats prctaad and wed 4450 unts ogaxensts Comte be fellow TT Maer pee varace Mat cee variancs Ur mt varance to flea varance Problem ong Hospi gris bod esi te aber. The flloming standards toca et ch lod tt proms tim ‘Si-a o Hous Diet ats pes Pas perpias Dirt ab Fhe P 1S0pechour Vernbleoretead 02 hows 2 700perhost uring Me beratry perfor 1500 bod tes On May here were no Pines on afer plate urd fora loo teat ts cared. Vale oercad ‘Basgned bled tas onthe bat of dre Tabor hous The following eva ‘cured dng Ma ‘AY SA plats were pardasd at cont of P40 5) 3:00 ples wor ted for lod tests ©) stb cial detabr bore were oka a cot of PS, 100, Roguconit: Compute he allowing the matenal price variance 2 Te terial quay vane 3) The bora varamce 4 The abo elec variance 5 The sabe ovtiad efficiency variance Chapter 12. Standard Costing, 42s Protiem 3 Goldin Shower Company es a baited smal monthly capac of $00 labor ours wth sanded praicton of 000 ante thr capac Stand it ae ‘Mates ‘hil at P10 {aber P00 per hour Factor thea at somal capacty Fed expenses P5000 Varabicexpenses 1.50 per abr our uring January, acu ictry orthead ttl PH1.250 and 4.500 labor hours. ost 13,380, Production during he moeth was 3.00 wits using 7200 kl of ars 3 oat of PL? perio Routed: Two varanes formate, labor and overhead Probiem 4 ‘The Fenton company manufactures one product and provides you with the alli Infomation forthe year 2012 Norma iret abo hour 155,000 Sanat ed everband rae Pe Standard ned enerand co prot Pio Unite mamta 0.00 ‘Aa dret abo hours 1as.000| ‘Amal overhead: Vane Pa75.00 Fred 652.500 Tora budgted overhead PLoss00 Requires 1 Compute the variable overhead spending and efficiency vanes 1 Comput the fined overbead sending and volume varia 5S Compute the varances wing Pay method “4 Compute the variances wing ra method 5. Compete varances using #ay method