Title: Standard Costing and Performance Measures for Todays Manufacturing Environment
110
Chapter Ten
- Standard Costing and Performance Measuresfor
Todays ManufacturingEnvironment
2Questions
- Class 31, 32, 41
- Home 35, 43, 46, 51
3Managing Costs
Standardperformancelevel
Actualperformancelevel
Comparison between standard and actual
performancelevel
Costvariance
4Standard Costs
Based on carefullypredetermined amounts.
Used for planning labor and material requirements.
The expected levelof performance.
Benchmarks formeasuring performance.
5Participation in Setting Standards
- Accountants, engineers, personnel
administrators, and production managers combine
efforts to set standards based on experience and
expectations. -
6Perfection versus Practical Standards A
Behavioral Issue
7Perfection versus Practical Standards A
Behavioral Issue
I agree. Perfection standards areunattainable
and therefore discouraging to most employees.
8Variance Analysis Cycle
Takecorrective actions.
Identifyquestions.
Receive explanations.
Conduct next periods operations.
Analyze variances.
Prepare standard cost performance report.
Begin
9Cost Variance Analysis
10A General Model for Variance Analysis
Actual Quantity Actual Quantity
Standard Quantity
Actual Price Standard Price
Standard Price
Price Variance
Quantity Variance
11A General Model for Variance Analysis
Actual Quantity Actual Quantity
Standard Quantity
Actual Price Standard Price
Standard Price
Price Variance
Quantity Variance
Standard quantity is the quantity allowed for the
actual good output.
12A General Model for Variance Analysis
AQ(AP - SP)
SP(AQ - SQ) AQ Actual Quantity
SP Standard Price AP Actual Price
SQ Standard Quantity
13Standard Costs
Lets use the concepts of the general model to
calculate standard cost variances, starting
withdirect material.
14Material Variances
- 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.
15Material Variances
Zippy
- 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.
16Material Variances
- 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.
AP 6,630 1,700 lbs.AP 3.90 per lb.
17Material Variances
Zippy
- Hansons material price variance (MPV)for the
week was - a. 170 unfavorable.
- b. 170 favorable.
- c. 800 unfavorable.
- d. 800 favorable.
18Material Variances
- Hansons 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 Favorable
19Material Variances
- The standard quantity of material thatshould
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.
20Material Variances
- The standard quantity of material thatshould
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
21Material Variances
- Hansons material quantity variance (MQV) for
the week was - a. 170 unfavorable.
- b. 170 favorable.
- c. 800 unfavorable.
- d. 800 favorable.
22Material Variances
- Hansons 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 unfavorable
23Material Variances Summary
Actual Quantity Actual Quantity
Standard Quantity
Actual Price Standard Price
Standard Price
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
24Material Variances
25Material Variances
- 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.
26Material Variances
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
27Material Variances
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
28Isolation of Material Variances
29Responsibility for Material Variances
30Standard Costs
Now lets calculate standard cost variances for
direct labor.
31Labor Variances
Hanson Inc. has the following direct labor
standard to manufacture one Zippy 1.5 standard
hours per Zippy at 10.00 per direct labor hour
Last week 1,550 direct labor hours were worked
at a total labor cost of 15,810 to make 1,000
Zippies.
32Labor Variances
What was Hansons actual rate (AR)for labor for
the week? a. 10.20 per hour. b. 10.10 per
hour. c. 9.90 per hour. d. 9.80 per hour.
33Labor Variances
What was Hansons actual rate (AR)for labor for
the week? a. 10.20 per hour. b. 10.10 per
hour. c. 9.90 per hour. d. 9.80 per hour.
AR 15,810 1,550 hours AR 10.20 per hour
34Labor Variances
Hansons labor rate variance (LRV)for the week
was a. 310 unfavorable. b. 310
favorable. c. 300 unfavorable. d. 300
favorable.
35Labor Variances
Hansons labor rate variance (LRV)for the week
was a. 310 unfavorable. b. 310
favorable. c. 300 unfavorable. d. 300
favorable.
LRV AH(AR - SR) LRV 1,550 hrs(10.20 -
10.00) LRV 310 unfavorable
36Labor Variances
The standard hours (SH) of labor thatshould
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.
37Labor Variances
The standard hours (SH) of labor thatshould
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.
SH 1,000 units 1.5 hours per unit SH
1,500 hours
38Labor Variances
Hansons labor efficiency variance (LEV)for the
week was a. 510 unfavorable. b. 510
favorable. c. 500 unfavorable. d. 500
favorable.
39Labor Variances
Hansons labor efficiency variance (LEV)for the
week was a. 510 unfavorable. b. 510
favorable. c. 500 unfavorable. d. 500
favorable.
LEV SR(AH - SH) LEV 10.00(1,550 hrs -
1,500 hrs) LEV 500 unfavorable
40Labor Variances Summary
Actual Hours Actual Hours
Standard Hours
Actual Rate Standard Rate
Standard Rate
1,550 hours 1,550 hours
1,500 hours
10.20 per hour 10.00 per
hour 10.00 per hour 15,810
15,500
15,000
41Labor Rate Variance A Closer Look
Using highly paid skilled workers toperform
unskilled tasks results in anunfavorable rate
variance.
High skill,high rate
Low skill,low rate
Production managers who make work assignmentsare
generally responsible for rate variances.
42Labor Efficiency Variance A Closer Look
43Responsibility for Labor Variances
I am not responsible for the unfavorable
laborefficiency variance! You purchased
cheapmaterial, so it took moretime to process
it.
44Responsibility for Labor Variances
Maybe I can attribute the laborand material
variances to personnel for hiring the wrong
peopleand training them poorly.
45Significance of Cost Variances
- Size of variance
- Dollar amount
- Percentage of standard
- Recurring variances
- Trends
- Controllability
- Favorable variances
- Costs and benefits of investigation
46Standard Costs and Product Costing
Standard material and labor costsare entered
into the manufacturingaccounts instead of actual
costs.
Standard cost variancesare closed directly
toCost of Goods Sold.
47Advantages of Standard Costing
Management byException
Sensible CostComparisons
PerformanceEvaluation
EmployeeMotivation
48Criticisms of Standard Costing
49The Balanced Scorecard
Exh.10-8
Financial Perspective How do we lookto the
firms owners?
Internal OperationsPerspective In which
activities must we excel?
Customer Perspective How do our customers see us?
Innovation andLearning PerspectiveHow can we
continuallyimprove and create value?
50End of Chapter 10
Lets set the standard alittle higher.