ACC 202 Chapter 10
ACC 202 Chapter 10 ACC 202
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This 3 page Class Notes was uploaded by Marissa Sarlls on Sunday January 10, 2016. The Class Notes belongs to ACC 202 at University of Kentucky taught by Jana Wilhelm in Spring 2016. Since its upload, it has received 12 views. For similar materials see Managerial Accounting (202, Wilhelm) in Accounting at University of Kentucky.
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Date Created: 01/10/16
ACC 202 Chp 10: Standard Costs and Variances Standard Costs—Setting the Stage A standard is a benchmark for measuring performance They relate to the quantity and acquisition price of inputs used in manufacturing goods or providing services Quantity standards specify how much of an input should be used to make a product or provide a service Price standards specify how much should be paid for each unit or the input Direct Materials Standards o Standard quantity per unit—defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage o Standard price per unit—defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials o Standard DM cost: Amount of materials per unit x cost per amount of materials = cost per unit Direct Labor Standards o Standard hours per unit—defines the amount of direct labor-hours that should be used to produce one unit of finished goods o Standard rate per hour—defines the company’s expected direct labor wage rate per hour, including employment taxes and fringe benefits o Standard DL cost: # of DLhrs per unit x cost per DLhr = cost per unit Variable Mnfg OH Standards o The standard hours per unit for variable OH measures the amount of the allocation base from a company’s predetermined OH rate that is required to produce one unit of FG o The standard rate per unit that a company expects to pay for variable OH equals the variable portion of the predetermined OH rate o Standard variable mnfg OH cost: # of DLhrs per unit x cost per DLhr = cost per unit o Standard cost card—shows the standard quantity (or hours) and standard price (or rate) of the inputs required to produce a unit of a specific product o Standard cost per unit—the standard quantity (or hours) allowed of an input per unit of a specific product, multiplied by the standard price (or rate) of the input Using Standards in Flexible Budgets Spending Flexible Budget Activity Planning Budget Actual Results Variances (rate) (Center) Variances (Standard) o The spending variances are computed by taking the amounts in the actual results column and subtracting the amounts in the flexible budget column o Activity variances are computed by taking the amounts in the flexible budget column and subtracting the amounts in the planning budget column A General Model for Standard Cost Variance Analysis Standard cost variance analysis decomposes spending variances from the flexible budget into two elements—one due to the price paid for the input and the other due to the actual amount of the input that is used Price variance—the difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased o Materials price variance for DM o Labor rate variance for DL o Variable OH rate variance for variable mnfg OH Quantity variance—the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input o Materials quantity variance for DM o Labor efficiency variance for DL o Variable OH efficiency for variable mnfg OH Based on actual amount of output Standard quantity allowed (SQ)—the amount of an input that should have been used to complete the period’s actual output. It is computed by multiplying the actual number of units produced by the standards quantity per unit (when computing DM variances) Standard hours allowed—the time that should have been taken to complete the period’s output. It is computed by multiplying the actual number of units produced by the standard hours per unit (when computing DL and variable mnfg OH variance) Using Standard Costs—DM Variance Standard quantity allowed for actual output = Actual output x Standard quantity Materials price variance—the difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased o = AQ(AP – SP) Materials quantity variance—the difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials o = SP(AQ – SQ) AQ = actual quantity of materials purchased and used in production SQ = standard quantity of materials allowed for the actual output AP = actual price per unit of the input SP = standard price per unit of the input The materials price & quantity variance when quantity of materials purchased equals quantity of materials used (Exhibit 10-4 and 10-5) Labor rate variance—the difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period o = AH(AR – SR) Labor efficiency variance—the difference between the actual hours taken to complete a task and the standard hours allowed for the actual output, multiplied by the standard hourly labor rate o = SR(AH – SH) o Causes of unfavorable labor efficiency variance include poorly trained or motivated workers, poor-quality materials, faulty equipment, AH = actual quantity of hours used in production SH = standard quantity of hours allowed for the actual output AR = actual rate per DLhr SR = standard rate per DLhr Using Standard Costs—Variable Mnfg OH Variances Variable OH rate variance—the difference between the actual variable OH cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period o = AH(AR – SR) o It is the rate that is used to translate the variance into dollars Variable OH efficiency variance—the difference between the actual level of activity (DLhrs, machine-hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined OH rate o = SR(AH – SH)
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