Professional Documents
Culture Documents
11 Standard Costs
Learning Objectives
1 Describe standard costs
11-2
LEARNING
OBJECTIVE
1 Describe standard costs.
There is a difference:
A standard is a unit amount.
A budget is a total amount
11-3 LO 1
Advantages
Illustration 11-1
11-4 LO 1
Setting Standard Costs
11-5 LO 1
Setting Standard Costs
11-6 LO 1
Setting Standard Costs
Question
Most companies that use standards set them at a(n):
a. optimum level.
b. ideal level.
c. normal level.
d. practical level.
11-7 LO 1
Accounting Across the Organization Navy
11-8 LO 1
Setting Standard Costs
A CASE STUDY
To establish the standard cost of producing a product, it is
necessary to establish standards for each manufacturing cost
element—
direct materials,
direct labor, and
manufacturing overhead.
11-9 LO 1
Setting Standard Costs
Direct Materials
The direct materials price standard is the cost per unit of
direct materials that should be incurred.
Illustration 11-2
Setting direct materials price standard
11-10 LO 1
Setting Standard Costs
Direct Materials
The direct materials quantity standard is the quantity of
direct materials that should be used per unit of finished goods.
Illustration 11-3
Setting direct materials Standard direct materials cost is $12.00
quantity standard
($3.00 x 4.0 pounds).
11-11 LO 1
Setting Standard Costs
Question
The direct materials price standard should include an
amount for all of the following except:
a. receiving costs.
b. storing costs.
c. handling costs.
d. normal spoilage costs.
11-12 LO 1
Setting Standard Costs
Direct Labor
The direct labor price standard is the rate per hour that
should be incurred for direct labor.
Illustration 11-4
Setting direct labor price standard
11-13 LO 1
Setting Standard Costs
Direct Labor
The direct labor quantity standard is the time that should be
required to make one unit of the product.
Illustration 11-5
Setting direct labor The standard direct labor cost is
quantity standard
11-14
$30 ($15.00 x 2.0 hours). LO 1
Setting Standard Costs
Manufacturing Overhead
For manufacturing overhead, companies use a standard
predetermined overhead rate in setting the standard.
This overhead rate is determined
by dividing budgeted overhead
costs by an expected standard
activity index, such as standard
direct labor hours or standard
machine hours.
11-15 LO 1
Setting Standard Costs
Manufacturing Overhead
The company expects to produce 13,200 gallons during the
year at normal capacity. It takes 2 direct labor hours for each
gallon.
Illustration 11-6
Computing predetermined
overhead rates Standard manufacturing overhead rate
per gallon is $10 ($5 x 2 hours).
11-16 LO 1
Setting Standard Costs
Illustration 11-7
Standard cost per gallon
of Xonic Tonic
The total standard cost per gallon
11-17 LO 1
DO IT! 1 Standard Costs
11-18 LO 1
LEARNING
OBJECTIVE
2 Determine direct materials variances.
11-19 LO 2
Analyzing and Reporting Variances
Question
A variance is favorable if actual costs are:
a. less than budgeted costs.
b. less than standard costs.
c. greater than budgeted costs.
d. greater than standard costs
11-20 LO 2
Analyzing and Reporting Variances
Illustration 11-9
11-21 Computation of total variance LO 2
Analyzing and Reporting Variances
$13,020 - $12,000
(4,200 x $3.10) (4,000 x $3.00)
= $1,020 U
Illustration 11-12
Formula for total
materials variance
11-22 LO 2
Analyzing and Reporting Variances
$13,020 - $12,600
(4,200 x $3.10) (4,200 x $3.00)
= $420 U
Illustration 11-14
Formula for materials
price variance
11-23 LO 2
Analyzing and Reporting Variances
$12,600 - $12,000
(4,200 x $3.00) (4,000 x $3.00)
= $600 U
Illustration 11-16
Summary of materials
variances
11-24 LO 2
Analyzing and Reporting Variances
1 2 3
1 - 2 2 - 3
$13,020 – $12,600 = $420 U $12,600 – $12,000 = $600 U
Total Variance
Illustration 11-17
Matrix for direct -
materials variances
1 3
$13,020 – $12,000 = $1,020 U
11-25 LO 2
Analyzing and Reporting Variances
11-26 LO 2
Analyzing and Reporting Variances
11-27 LO 2
DO IT! 2 Direct Materials Variances
11-28 LO 2
LEARNING
3
Determine direct labor and
OBJECTIVE manufacturing overhead variances.
11-29 LO 3
Analyzing and Reporting Variances
Illustration 11-20
Formula for labor price
variance
11-30 LO 3
Analyzing and Reporting Variances
Illustration 11-22
Summary of labor
variances
11-31 LO 3
Analyzing and Reporting Variances
1 2 3
1 - 2 2 - 3
$31,080 – $31,500 = $420 F $31,500 – $30,000 = $1,500 U
Total Variance
Illustration 11-23
Matrix for direct -
labor variances
1 3
$31,080 – $30,000 = $1,080 U
11-32 LO 3
Analyzing and Reporting Variances
2. misallocation of workers.
11-34 LO 3
Analyzing and Reporting Variances
Illustration 11-24
Actual overhead
costs
11-35 LO 3
Analyzing and Reporting Variances
The formula for the total overhead variance and the calculation
for Xonic, Inc. for the month of June.
Illustration 11-25
Formula for total overhead
variance
Standard hours allowed are the hours
that should have been worked for the units
produced.
11-36 LO 3
Analyzing and Reporting Variances
11-37 LO 3
Analyzing and Reporting Variances
11-38 LO 3
People, Planet, and Profit Insight Starbucks
11-40 LO 3
LEARNING
4
Prepare variance reports and
OBJECTIVE balanced scorecards.
Reporting Variances
All variances should be reported to appropriate levels of
management as soon as possible.
The form, content, and frequency of variance reports vary
considerably among companies.
Facilitate the principle of “management by exception.”
Top management normally looks for significant
variances.
11-41 LO 4
Analyzing and Reporting Variances
Reporting Variances
Materials price variance report for Xonic, Inc., with the
materials for the Xonic Tonic order listed first.
Illustration 11-26
XONIC
Variance Report—Purchasing Department
For the Week Ended June 8, 2017
11-42 LO 4
Analyzing and Reporting Variances
Presentation XONIC
Income Statement
of Variances For the Month Ended June 30, 2017
In income statements
prepared for
management under a
standard cost
accounting system,
cost of goods sold is
stated at standard
cost and the
variances are
disclosed separately.
11-43 LO 4
Analyzing and Reporting Variances
Question
Which of the following is incorrect about variance reports?
a. They facilitate “management by exception.”
b. They should only be sent to the top level of
management.
c. They should be prepared as soon as possible.
d. They may vary in form, content, and frequency among
companies.
11-44 LO 4
Balanced Scorecard
Illustration 11-30
Linked process across balanced
scorecard perspectives
11-45 LO 4
Illustration 11-28
Nonfinancial
measures used
in various industries
11-46 LO 4
Illustration 11-29
Examples of objectives within the four
perspectives of balanced scorecard
11-47 LO 4
Balanced Scorecard
Question
Which of the following would not be an objective used in the
customer perspective of the balanced scorecard approach?
a. Percentage of customers who would recommend
product to a friend.
b. Customer retention.
c. Brand recognition.
d. Earning per share.
11-48 LO 4
Balanced Scorecard
11-49 LO 4
Service Company Insight United Airlines
11-52 LO 5
Standard Cost Accounting System
2. Incur direct labor costs of $31,080 when the standard labor cost
is $31,500.
Factory Labor 31,500
Labor Price Variance 420
Factory Wages Payable 31,080
11-53 LO 5
Standard Cost Accounting System
11-54 LO 5
Standard Cost Accounting System
11-55 LO 5
Standard Cost Accounting System
11-56 LO 5
Standard Cost Accounting System
11-57 LO 5
Ledger
Accounts
Illustration 11A-1
Cost accounts with
variances
11-58 LO 5
LEARNING APPENDIX 11B: Compute overhead
6
OBJECTIVE controllable and volume variances.
11-59 LO 6
Overhead Controllable Variance
11-60 LO 6
Overhead Controllable Variance
Illustration 11B-1
11-61 LO 6
Overhead Controllable Variance
Illustration 11B-2
Formula for overhead
controllable variance
11-62 LO 6
Overhead Volume Variance
Illustration 11B-3
11-63 LO 6
Overhead Volume Variance
11-64 LO 6
Overhead Volume Variance
11-65 LO 6
Copyright
“Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful. Request
for further information should be addressed to the Permissions
Department, John Wiley & Sons, Inc. The purchaser may make back-
up copies for his/her own use only and not for distribution or resale.
The Publisher assumes no responsibility for errors, omissions, or
damages, caused by the use of these programs or from the use of the
information contained herein.”
11-66