1、Standard Costs and Operating Performance Measures,Standard Costs,Benchmarks for measuring performance.,The expected level of performance.,Based on carefully predetermined amounts.,Used for planning labor, material and overhead requirements.,Standard Costs are,Standard Costs,Direct Material,Managers
2、focus on quantities and costs that exceed standards, a practice known as management by exception.,Type of Product Cost,Amount,Direct Labor,Manufacturing Overhead,Standard,Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience an
3、d expectations.,Setting Standard Costs,Setting Standard Costs,Engineer,Managerial Accountant,Setting Standard Costs,Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.,Production manager,Setting Standard Costs,I agree. Ideal standards, that
4、 are based on perfection, are unattainable and discourage most employees.,Human Resources Manager,Setting Direct Material Standards,Quantity Standards,Use product design specifications.,Price Standards,Final, delivered cost of materials, net of discounts.,Setting Direct Labor Standards,Rate Standard
5、s,Use wage surveys and labor contracts.,Time Standards,Use time and motion studies for each labor operation.,Setting Variable Overhead Standards,Rate Standards,The rate is the variable portion of the predetermined overhead rate.,Activity Standards,The activity is the base used to calculate the prede
6、termined 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 standard is the expected cost for one unit. A budget is the expected cost for all units.,Standards vs. Budgets,Standard Cost Variance
7、s,Product Cost,Standard,This variance is unfavorable because the actual cost exceeds the standard cost.,A standard cost variance is the amount by which an actual cost differs from the standard cost.,Standard Cost Variances,Variance Analysis Cycle,Prepare standard cost performance report,Conduct next
8、 periods operations,Analyze variances,Identify questions,Receive explanations,Take corrective actions,Begin,Standard Cost Variances,Standard Cost Variances,A General Model for Variance Analysis,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,Price Varianc
9、e,Quantity Variance,Standard price is the amount that should have been paid for the resources acquired.,Price Variance,Quantity Variance,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,A General Model for Variance Analysis,Standard quantity is the quantit
10、y allowed for the actual 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 Variance,Quantity Variance,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard
11、 Price,Standard Costs,Lets use the general model to calculate standard cost variances, starting with direct material.,Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per poundLast week 1,700 pounds of material were purchased and used to
12、make 1,000 Zippies. The material cost a total of $6,630.,Material Variances Example,What is the actual price per pound paid for the material? a. $4.00 per pound.b. $4.10 per pound.c. $3.90 per pound.d. $6.63 per pound.,Material Variances,What is the actual price per pound paid for the material? a. $
13、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.,Material Variances,Hansons material price variance (MPV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Material Variances,Hansons materia
14、l 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 Favorable,Material Variances,The standard quantity of material that should have been used to produce 1,000 Zippies is:a. 1
15、,700 pounds. b. 1,500 pounds.c. 2,550 pounds.d. 2,000 pounds.,Material Variances,The standard quantity of material that should have been used to produce 1,000 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 lbs,Material Varian
16、ces,Hansons material quantity variance (MQV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Material Variances,Hansons material quantity variance (MQV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,MQV = S
17、P(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorable,Material Variances,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 favorable,Quantity variance $800 unfavorable,Actual Quantity Actual Quantity Standard Quan
18、tity Actual Price Standard Price Standard Price,Material Variances Summary,Material Variances,Hanson 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 var
19、iance 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 poundLast 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 Varia
20、nces Continued,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 Continued,Actual Quanti
21、ty 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 unfavorable,Quantity variance is unchanged because actual and standard quantities are unchanged.,Material Variances Continued,Isolation of Material Varian
22、ces,Responsibility for Material Variances,Standard Costs,Now lets calculate standard cost variances for direct labor.,Hanson Inc. has the following direct labor standard to manufacture one Zippy:1.5 standard hours per Zippy at $6.00 per direct labor hourLast week 1,550 direct labor hours were worked
23、 at a total labor cost of $9,610 to make 1,000 Zippies.,Labor Variances Example,What was Hansons 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.,Labor Variances,What was Hansons actual rate (AR) for labor for the week?a. $6.20 per hour
24、.b. $6.00 per hour.c. $5.80 per hour.d. $5.60 per hour.,Labor Variances,AR = $9,610 1,550 hours AR = $6.20 per hour,Hansons labor rate variance (LRV) for the week was:a. $310 unfavorable.b. $310 favorable.c. $300 unfavorable.d. $300 favorable.,Labor Variances,Hansons labor rate variance (LRV) for th
25、e week was:a. $310 unfavorable.b. $310 favorable.c. $300 unfavorable.d. $300 favorable.,Labor Variances,LRV = AH(AR - SR) LRV = 1,550 hrs($6.20 - $6.00) LRV = $310 unfavorable,The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is:a. 1,550 hours. b. 1,500 hours.c.
26、1,700 hours.d. 1,800 hours.,Labor Variances,The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is:a. 1,550 hours. b. 1,500 hours.c. 1,700 hours.d. 1,800 hours.,Labor Variances,SH = 1,000 units 1.5 hours per unit SH = 1,500 hours,Hansons labor efficiency variance (
27、LEV) for the week was:a. $290 unfavorable.b. $290 favorable.c. $300 unfavorable.d. $300 favorable.,Labor Variances,Hansons labor efficiency variance (LEV) for the week was:a. $290 unfavorable.b. $290 favorable.c. $300 unfavorable.d. $300 favorable.,Labor Variances,LEV = SR(AH - SH) LEV = $6.00(1,550
28、 hrs - 1,500 hrs) LEV = $300 unfavorable,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,Labor Variances Summary,Rate variance $310 unfavorable,Efficiency variance $300 unfavorable,1,550 hours 1,550 hours 1,500 hours $6.20 per hour $6.00 per hour $6.00 per hour= $9,6
29、10 = $9,300 = $9,000,Labor Rate Variance A Closer Look,High skill, high rate,Low skill, low rate,Using highly paid skilled workers to perform unskilled tasks results in an unfavorable rate variance.,Production managers who make work assignments are generally responsible for rate variances.,Labor Eff
30、iciency Variance A Closer Look,Unfavorable Efficiency Variance,Poorly trained workers,Poor quality materials,Poorly maintained equipment,Poor supervision of workers,Responsibility for Labor Variances,Responsibility for Labor Variances,Maybe I can attribute the labor and material variances to personn
31、el for hiring the wrong people and training them poorly.,Standard Costs,Now lets calculate standard cost variances for the last of the variable production costs variable manufacturing overhead.,Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy:1.5 standa
32、rd hours per Zippy at $3.00 per direct labor hourLast week 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead.,Variable Manufacturing Overhead Variances Example,What was Hansons actual rate (AR) for variable manufacturing overhead rate for the wee
33、k?a. $3.00 per hour.b. $3.19 per hour.c. $3.30 per hour.d. $4.50 per hour.,Variable Manufacturing Overhead Variances,What was Hansons 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.,Variable Manufacturing
34、 Overhead Variances,AR = $5,115 1,550 hours AR = $3.30 per hour,Hansons spending variance (SV) for variable manufacturing overhead for the week was:a. $465 unfavorable.b. $400 favorable.c. $335 unfavorable.d. $300 favorable.,Variable Manufacturing Overhead Variances,Hansons spending variance (SV) fo
35、r variable manufacturing overhead for the week was:a. $465 unfavorable.b. $400 favorable.c. $335 unfavorable.d. $300 favorable.,Variable Manufacturing Overhead Variances,SV = AH(AR - SR) SV = 1,550 hrs($3.30 - $3.00) SV = $465 unfavorable,Hansons efficiency variance (EV) for variable manufacturing o
36、verhead for the week was:a. $435 unfavorable.b. $435 favorable.c. $150 unfavorable.d. $150 favorable.,Variable Manufacturing Overhead Variances,Hansons efficiency variance (EV) for variable manufacturing overhead for the week was:a. $435 unfavorable.b. $435 favorable.c. $150 unfavorable.d. $150 favo
37、rable.,Variable Manufacturing Overhead Variances,EV = SR(AH - SH) EV = $3.00(1,550 hrs - 1,500 hrs) EV = $150 unfavorable,1,000 units 1.5 hrs per unit,Spending variance $465 unfavorable,Efficiency variance $150 unfavorable,1,550 hours 1,550 hours 1,500 hours $3.30 per hour $3.00 per hour $3.00 per h
38、our= $5,115 = $4,650 = $4,500,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,Variable Manufacturing Overhead Variances,Variable Manufacturing Overhead Variances A Closer Look,If variable overhead is applied on the basis of direct labor hours, the labor efficiency an
39、d variable overhead efficiency variances will move in tandem.,Larger variances, in dollar amount or as a percentage of the standard, are investigated first.,Variance Analysis and Management by Exception,How do I know which variances to investigate?,Advantages of Standard Costs,Management by exceptio
40、n,Improved cost control and performance evaluation,Better Information for planning and decision making,Possible reductions in production costs,Advantages,Potential Problems,Emphasis on negative may impact morale.,Emphasizing standards may exclude other important objectives.,Favorable variances may b
41、e misinterpreted.,Continuous improvement may be more important than meeting standards.,Standard cost reports may not be timely.,Labor quantity standards and efficiency variances may not be appropriate.,The Balanced Scorecard,Management translates its strategy into performance measures that employees
42、 understand and accept.,Performance measures,Financial,Customers,Learning and growth,Internal business processes,The Balanced Scorecard,How do we look to the owners?,How can we continually learn, grow, and improve?,In which internal business processes must we excel?,How do we look to customers?,The
43、Balanced Scorecard,Learning improves business processes.,Improved business processes improve customer satisfaction.,Improving customer satisfaction improves financial results.,Process time is the only value-added time.,Delivery Performance Measures,Wait Time,Process Time + Inspection Time + Move Time + Queue Time,Order Received,Production Started,Goods Shipped,Delivery Cycle Time,Throughput Time,Delivery Performance Measures,Wait Time,Throughput Time,Process Time + Inspection Time + Move Time + Queue Time,Order Received,Production Started,Goods Shipped,Delivery Cycle Time,End of Chapter 10,
