Kế toán, kiểm toán - Chapter 8: Standard costs

Standard Costs Chapter8Standard CostsStandard Costs are Predetermined.Used for planning labor, materialand overhead requirements.Benchmarks formeasuring performance.Used to simplify theaccounting system.Standard CostsDirectMaterialManagers focus on quantities and coststhat exceed standards, a practice known as management by exception. Type of Product CostAmountDirectLaborManufacturingOverheadStandard Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations. Setting Standard CostsSetting Standard CostsShould we usepractical standardsor ideal standards?EngineerManagerialAccountantSetting Standard CostsPractical standardsshould be set at levelsthat are currentlyattainable withreasonable andefficient effort.ProductionmanagerSetting Standard CostsI agree. Ideal standards, that are based on perfection, areunattainable and discourage most employees.HumanResourcesManagerNoteThe argument that ideal standards are discouraging has been persuasive for many years. So “normal” defects and waste were built into the standards. In recent years, TQM and other initiatives have sought to eliminate all defects and waste. Ideal standards, that allow for no waste, have become more popular.The emphasis is on improvement over time, not attaining the ideal standards right now.Setting Direct Material Standards QuantityStandardsUse product design specifications.PriceStandardsFinal, deliveredcost of materials,net of discounts.Setting Direct Labor Standards RateStandardsUse wage surveys andlabor contracts.TimeStandardsUse time and motion studies foreach labor operation.Setting Variable Overhead Standards RateStandardsThe rate is the variable portion of the predetermined overhead rate.ActivityStandardsThe activity is the base used to calculate the predetermined overhead.Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this:Are standards the same as budgets? A budget is set for total costs.A standard is a per unit cost.Standards are often used when putting together a budget.Standards vs. BudgetsStandard Cost VariancesCostStandardThis variance is unfavorablebecause the actual costexceeds the standard cost. A standard cost variance is the amount by whichan actual cost differs from the standard cost.Standard Cost VariancesI see that thereis an unfavorable variance. But why arevariances important to me?First, they point to causes ofproblems and directionsfor improvement.Second, they trigger investigations in departments having responsibility for incurring the costs.Variance Analysis CyclePrepare standard cost performance reportAnalyze variancesBeginIdentifyquestionsReceive explanationsTakecorrective actionsConduct next period’s operationsStandard Cost VariancesStandard Cost VariancesPrice VarianceThe difference betweenthe actual price and thestandard priceQuantity VarianceThe difference betweenthe actual quantity andthe standard quantityA General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceStandard price is the amount that should have been paid for the resources acquired.Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance Analysis Standard quantity is the quantity allowed for the actual good output.standard input per unit of output X amount of good output. A General Model for Variance Analysis AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceStandard CostsLet’s use the general model to calculate standard cost variances, starting withdirect material. Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka.0.1 kg. of fiberfill per parka at $5.00 per kg. Last month 210 kgs of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029.Material Variances Example 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance$21 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceMaterial Variances Summary 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance$21 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceMaterial Variances Summary$1,029  210 kgs = $4.90 per kg 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance$21 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceMaterial Variances Summary0.1 kg per parka  2,000 parkas = 200 kgsNote: Using the formulasMaterials price varianceMPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 FMaterials quantity varianceMQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka 2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 UQuick Check  Suppose only 190 kgs of fiberfill were used to make 2,000 parkas? What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill.a. $50 F b. $50 Uc. $100 Fd. $100 UQuick Check  Suppose only 190 kgs of fiberfill were used to make 2,000 parkas? What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill.a. $50 F b. $50 Uc. $100 Fd. $100 UMQV = SP (AQ - SQ) = $5.00/kg (190 kgs-(0.1 kg/parka 2,000 parkas)) = $5.00/kg (190 kgs - 200 kgs) = $5.00/kg (-10 kgs) = $50 FQuick Check  If the material standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing?a. Yes b. NoQuick Check  If the material standard specifies exactly how much material should be in the final product without any wastage, is a favorable (F) materials quantity variance a good thing?a. Yes b. No Hanson Inc. has the following direct material standard to manufacture one Zippy:1.5 pounds per Zippy at $4.00 per pound Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Material Variances ExampleZippy What is the actual price per poundpaid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.Quick Check Zippy What is the actual price per poundpaid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.AP = $6,630 ÷ 1,700 lbs.AP = $3.90 per lb. Quick Check Zippy Hanson’s material price variance (MPV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.Quick Check Zippy Hanson’s material price variance (MPV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 FavorableQuick Check Zippy The standard quantity of material thatshould have been used to produce1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds.Quick Check Zippy The standard quantity of material thatshould have been used to produce1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds. SQ = 1,000 units × 1.5 lbs per unit SQ = 1,500 lbsQuick Check Zippy Hanson’s material quantity variance (MQV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.Quick Check Zippy Hanson’s material quantity variance (MQV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorableQuick Check Zippy 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. = $6,630 = $ 6,800 = $6,000 Price variance$170 favorableQuantity variance$800 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceMaterial Variances SummaryZippyMaterial VariancesHanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? The price variance is computed on the entire quantity purchased.The quantity variance is computed only on the quantity used. Hanson Inc. has the following material standard to manufacture one Zippy:1.5 pounds per Zippy at $4.00 per pound Last week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Material Variances ContinuedZippy Actual Quantity Actual Quantity  Purchased Purchased × ×  Actual Price Standard Price 2,800 lbs. 2,800 lbs.  × ×  $3.90 per lb. $4.00 per lb. = $10,920 = $11,200 Price variance$280 favorable Price variance increases because quantity purchased increases.Material Variances ContinuedZippy Actual Quantity  Used Standard Quantity  × ×  Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb. = $6,800 = $6,000 Quantity variance$800 unfavorableQuantity variance is unchanged because actual and standard quantities are unchanged.Material Variances ContinuedZippyIsolation of Material VariancesI need the price variancesooner so that I can betteridentify purchasing problems.You accountants just don’tunderstand the problems thatpurchasing managers have.I’ll start computingthe price variancewhen material ispurchased rather thanwhen it’s used.Responsibility for Material VariancesI am not responsible for this unfavorable materialquantity variance. You purchased cheapmaterial, so my peoplehad to use more of it.You used too much material because of poorly trained workers and poorly maintained equipment.Also, your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. Standard CostsNow let’s calculate standard cost variances for direct labor.NoteMaterials variances:Material price varianceMPV = AQ (AP - SP)Material quantity varianceMQV = SP (AQ - SQ)Labor variances:Labor rate varianceLRV = AH (AR - SR)Labor efficiency varianceLEV = SR (AH - SH) Actual hoursActual rateStandard rateStandard hours allowed for the actual good output Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $6.00 perdirect labor hour Last week 1,550 direct labor hours were worked at a total labor cost of $9,610 to make 1,000 Zippies. Labor Variances ExampleZippy What was Hanson’s actual rate (AR)for labor for the week? a. $6.20 per hour. b. $6.00 per hour. c. $5.80 per hour. d. $5.60 per hour.Quick Check Zippy What was Hanson’s actual rate (AR)for labor for the week? a. $6.20 per hour. b. $6.00 per hour. c. $5.80 per hour. d. $5.60 per hour.Quick Check  AR = $9,610 ÷ 1,550 hours AR = $6.20 per hourZippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check  LRV = AH(AR - SR) LRV = 1,550 hrs($6.20 - $6.00) LRV = $310 unfavorableZippy The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is: a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours.Quick Check Zippy The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is: a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours.Quick Check  SH = 1,000 units × 1.5 hours per unit SH = 1,500 hoursZippy Hanson’s labor efficiency variance (LEV)for the week was: a. $290 unfavorable. b. $290 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check Zippy Hanson’s labor efficiency variance (LEV)for the week was: a. $290 unfavorable. b. $290 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check  LEV = SR(AH - SH) LEV = $6.00(1,550 hrs - 1,500 hrs) LEV = $300 unfavorableZippy Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateLabor Variances SummaryRate variance$310 unfavorableEfficiency variance$300 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $6.20 per hour $6.00 per hour $6.00 per hour = $9,610 = $9,300 = $9,000 ZippyLabor Rate Variance – A Closer LookHigh skill,high rateLow skill,low rateUsing highly paid skilled workers toperform unskilled tasks results in anunfavorable rate variance.Production managers who make work assignmentsare generally responsible for rate variances.Labor Efficiency Variance –A Closer LookUnfavorableEfficiencyVariancePoorsupervisionof workersInsufficientDemand orBottlenecksPoorlytrainedworkersPoorqualitymaterialsResponsibility for Labor VariancesI am not responsible for the unfavorable laborefficiency variance! You purchased cheapmaterial, so it took moretime to process it. You used too much time because of poorly trained workers and poor supervision.Responsibility for Labor VariancesMaybe I can attribute the laborand material variances to personnel for hiring the wrong peopleand training them poorly. Standard CostsNow let’s calculate standard cost variances for the last of the variable production costs – variable manufacturing overhead. NoteLabor variances:Labor rate varianceLRV = AH (AR - SR)Labor efficiency varianceLEV = SR (AH - SH)Variable overhead variances:Variable overhead spending varianceVOSV = AH (AR - SR)Variable overhead efficiency varianceVOEV = SR (AH - SH) Actual hours of the allocation baseActual variable overhead rateStandard variable overhead rateStandard hours allowed for the actual good output Hanson Inc. has the following variable manufacturing overhead standard tomanufacture one Zippy: 1.5 standard hours per Zippy at $3.00 perdirect labor hour Last week 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent forvariable manufacturing overhead.Variable ManufacturingOverhead Variances ExampleZippy What was Hanson’s actual rate (AR) for variable manufacturing overhead rate for the week? a. $3.00 per hour. b. $3.19 per hour. c. $3.30 per hour. d. $4.50 per hour.Quick Check Zippy What was Hanson’s actual rate (AR) for variable manufacturing overhead rate for the week? a. $3.00 per hour. b. $3.19 per hour. c. $3.30 per hour. d. $4.50 per hour.Quick Check  AR = $5,115 ÷ 1,550 hours AR = $3.30 per hourZippy Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable.Quick Check Zippy Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable.Quick Check  SV = AH(AR - SR) SV = 1,550 hrs($3.30 - $3.00) SV = $465 unfavorableZippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable.Quick Check Zippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable.Quick Check  EV = SR(AH - SH) EV = $3.00(1,550 hrs - 1,500 hrs) EV = $150 unfavorable1,000 units × 1.5 hrs per unitZippySpending variance$465 unfavorableEfficiency variance$150 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500 Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateVariable ManufacturingOverhead VariancesZippyVariable Manufacturing Overhead Variances – A Closer LookIf variable overhead is applied on the basisof direct labor hours, the labor efficiencyand variable overhead efficiency varianceswill move in tandem.Variance Analysis and Management by ExceptionHow do I know which variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first. Advantages of Standard CostsManagement byexceptionImproved cost control and performanceevaluationBetter Informationfor planning anddecision makingPossible reductionsin production costsAdvantagesPotentialProblemsEmphasis on negativemay impact morale.Emphasizing standardsmay exclude otherimportant objectives.Favorable variancesmay be misinterpreted.Continuous improvementmay be moreimportant thanmeeting standards.Standard costreports maynot be timely.Labor quantity standardsand efficiency variancesmay not be appropriate.End of Chapter 8