1、Chapter 10,Standard Costs and the Balanced Scorecard,Standard Costs,Standards are benchmarks or “norms” for measuring performance. Two types of standards are commonly used.,Quantity standards specify how much of an input should be used to make a product or provide a service.,Cost (price) standards s
2、pecify how much should be paid for each unit of the input.,Standard Costs,Direct Material,Type of Product Cost,Amount,Direct Labor,Manufacturing Overhead,Standard,Variance Analysis Cycle,Prepare standard cost performance report,Begin,Take corrective actions,Conduct next periods operations,Exhibit 10
3、-1,Accountants, engineers, purchasing managers, production supervisors, line managers, and production workers combine efforts to set standards that encourage efficient future production.,Setting Standard Costs,Setting Standard Costs,Engineer,Managerial Accountant,Learning Objective 1,Explain how dir
4、ect materials standards and direct labor standards are set.,Setting Direct Material Standards,Price Standards,Setting Direct Labor Standards,Setting Variable Overhead Standards,Standard Cost Card Variable Production Cost,A standard cost card for one unit of product might look like this:,Price and Qu
5、antity Standards,Price and quantity standards are determined separately for two reasons:,The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.,The buying and using activities occur at different times. R
6、aw material purchases may be held in inventory for a period of time before being used in production.,A General Model for Variance Analysis,Variance Analysis,Variance Analysis,Materials quantity variance Labor efficiency variance VOH efficiency variance,A General Model for Variance Analysis,A General
7、 Model for Variance Analysis,A General Model for Variance Analysis,A General Model for Variance Analysis,A General Model for Variance Analysis,Actual price is the amount actually paid for the input used.,A General Model for Variance Analysis,Standard price is the amount that should have been paid fo
8、r the input used.,A General Model for Variance Analysis,(AQ AP) (AQ SP) (AQ SP) (SQ SP)AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity,Learning Objective 2,Compute the direct materials price and quantity variances and explain their significance.,Glacier Peak Outfitt
9、ers 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 k
10、gs. $4.90 per kg. $5.00 per kg. $5.00 per kg.= $1,029 = $1,050 = $1,000,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,Material 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 varianc
11、e $21 favorable,Quantity variance $50 unfavorable,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,Material 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 favorable,Quanti
12、ty variance $50 unfavorable,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,Material Variances Summary,Material Variances: Using the Factored Equations,Materials price variance MPV = AQ (AP - SP)= 210 kgs ($4.90/kg - $5.00/kg)= 210 kgs (-$0.10/kg)= $21 F
13、Materials quantity variance MQV = 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 U,Isolation of Material Variances,Material Variances,Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased dif
14、fers from the amount used?,Responsibility for Material Variances,Materials Price Variance,Materials Quantity Variance,Production Manager,Purchasing Manager,The standard price is used to compute the quantity variance so that the production manager is not held responsible for the purchasing managers p
15、erformance.,Responsibility for Material Variances,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 make 1,000 Zippies. The material cost a total of $6,630.,Quick Chec
16、k ,Quick Check ,Hansons material price variance (MPV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Hansons material price variance (MPV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Quick Check ,Quick C
17、heck ,Hansons material quantity variance (MQV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Hansons material quantity variance (MQV) for the week was:a. $170 unfavorable.b. $170 favorable.c. $800 unfavorable.d. $800 favorable.,Quick Check ,1,700 lbs.
18、1,700 lbs. 1,500 lbs. $3.90 per lb. $4.00 per lb. $4.00 per lb.= $6,630 = $ 6,800 = $6,000,Actual Quantity Actual Quantity Standard Quantity Actual Price Standard Price Standard Price,Quick Check ,Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00
19、 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.,Quick Check 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
20、 = $11,200,Quick Check Continued,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,Quick Check Continued,Learning Objective 3,Compute the direct labor rate and efficiency variances and explain their significance.,G
21、lacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hourLast month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas.,Labor Variances Example,2,500 hours 2,500 hours 2,400 hours $
22、10.50 per hour $10.00 per hour. $10.00 per hour= $26,250 = $25,000 = $24,000,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,Labor Variances Summary,Labor Variances Summary,2,500 hours 2,500 hours 2,400 hours $10.50 per hour $10.00 per hour. $10.00 per hour= $26,250
23、= $25,000 = $24,000,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,Labor Variances Summary,2,500 hours 2,500 hours 2,400 hours $10.50 per hour $10.00 per hour. $10.00 per hour= $26,250 = $25,000 = $24,000,Actual Hours Actual Hours Standard Hours Actual Rate Standard
24、 Rate Standard Rate,Labor Variances: Using the Factored Equations,Labor rate variance LRV = AH (AR - SR)= 2,500 hours ($10.50 per hour $10.00 per hour)= 2,500 hours ($0.50 per hour)= $1,250 unfavorable Labor efficiency variance LEV = SR (AH - SH)= $10.00 per hour (2,500 hours 2,400 hours)= $10.00 pe
25、r hour (100 hours) = $1,000 unfavorable,Responsibility for Labor Variances,Production Manager,Production managers are usually held accountable for labor variances because they can influence the:,Mix of skill levels assigned to work tasks.,Level of employee motivation.,Quality of production supervisi
26、on.,Quality of training provided to employees.,Responsibility for Labor Variances,Hanson Inc. has the following direct labor standard to manufacture one Zippy:1.5 standard hours per Zippy at $12.00 per direct labor hourLast week, 1,550 direct labor hours were worked at a total labor cost of $18,910
27、to make 1,000 Zippies.,Quick Check ,Hansons labor rate variance (LRV) for the week was:a. $310 unfavorable.b. $310 favorable.c. $300 unfavorable.d. $300 favorable.,Quick Check ,Hansons labor rate variance (LRV) for the week was:a. $310 unfavorable.b. $310 favorable.c. $300 unfavorable.d. $300 favora
28、ble.,Quick Check ,Hansons labor efficiency variance (LEV) for the week was:a. $590 unfavorable.b. $590 favorable.c. $600 unfavorable.d. $600 favorable.,Quick Check ,Hansons labor efficiency variance (LEV) for the week was:a. $590 unfavorable.b. $590 favorable.c. $600 unfavorable.d. $600 favorable.,Q
29、uick Check ,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,1,550 hours 1,550 hours 1,500 hours $12.20 per hour $12.00 per hour $12.00 per hour= $18,910 = $18,600 = $18,000,Quick Check ,Learning Objective 4,Compute the variable manufacturing overhead spending and eff
30、iciency variances.,Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain parka. 1.2 standard hours per parka at $4.00 per hourLast month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for
31、the month was $10,500.,Variable Manufacturing Overhead Variances Example,2,500 hours 2,500 hours 2,400 hours $4.20 per hour $4.00 per hour $4.00 per hour= $10,500 = $10,000 = $9,600,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,Variable Manufacturing Overhead Varia
32、nces Summary,Actual Hours Actual Hours Standard Hours Actual Rate Standard Rate Standard Rate,2,500 hours 2,500 hours 2,400 hours $4.20 per hour $4.00 per hour $4.00 per hour= $10,500 = $10,000 = $9,600,Variable Manufacturing Overhead Variances Summary,Actual Hours Actual Hours Standard Hours Actual
33、 Rate Standard Rate Standard Rate,2,500 hours 2,500 hours 2,400 hours $4.20 per hour $4.00 per hour $4.00 per hour= $10,500 = $10,000 = $9,600,Variable Manufacturing Overhead Variances Summary,Variable Manufacturing Overhead Variances: Using Factored Equations,Variable manufacturing overhead spendin
34、g variance VMSV = AH (AR - SR)= 2,500 hours ($4.20 per hour $4.00 per hour)= 2,500 hours ($0.20 per hour)= $500 unfavorable Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH)= $4.00 per hour (2,500 hours 2,400 hours)= $4.00 per hour (100 hours) = $400 unfavorable,Hanson Inc. has
35、 the following variable manufacturing overhead standard to manufacture one Zippy:1.5 standard 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.,Quick Check ,Hansons spending variance (VOSV
36、) for variable manufacturing overhead for the week was:a. $465 unfavorable.b. $400 favorable.c. $335 unfavorable.d. $300 favorable.,Quick Check ,Hansons spending variance (VOSV) for variable manufacturing overhead for the week was:a. $465 unfavorable.b. $400 favorable.c. $335 unfavorable.d. $300 fav
37、orable.,Quick Check ,Hansons 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 ,Hansons efficiency variance (VOEV) for variable manufacturing overhead for the week was:a. $435 unfav
38、orable.b. $435 favorable.c. $150 unfavorable.d. $150 favorable.,Quick Check ,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 Rate,Quick Check ,Variance Analysis and
39、Management by Exception,How do I know which variances to investigate?,A Statistical Control Chart,1,2,3,4,5,6,7,8,9,Variance Measurements,Favorable Limit,Unfavorable Limit,Warning signals for investigation,Desired Value,Exhibit 10-9,Advantages of Standard Costs,Management by exception,Promotes econo
40、my and efficiency,Simplified bookkeeping,Enhances responsibility accounting,Emphasis on negative may impact morale.,Emphasizing standards may exclude other important objectives.,Favorable variances may be misinterpreted.,Continuous improvement may be more important than meeting standards.,Standard c
41、ost reports may not be timely.,Invalid assumptions about the relationship between labor cost and output.,Potential Problems with Standard Costs,Standard cost variance reports are usually prepared on a monthly basis and are often released days or weeks after the end of the month; hence, the informati
42、on can be outdated. If variances are misused as a club to negatively reinforce employees, morale may suffer and employees may make dysfunctional decisions. Labor variances make two important assumptions. First, they assume that the production process is labor-paced; if labor works faster, output will go up. Second, the computations assume that labor is a variable cost. These assumptions are often invalid in todays automated manufacturing environment where employees are essentially a fixed cost.,
