Standard Costing

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Standard Costing

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... variances computed automatically are production-related variances ... Variance accounts pick up the differences between budget and actual. Production Variances ... – PowerPoint PPT presentation

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Title: Standard Costing


1
Standard Costing
2
Production Variances
  • The most common variances computed automatically
    are production-related variances
  • This is usually called a STANDARD COSTING SYSTEM
  • All inventory costs are recorded at budgeted
    amounts (the standard amounts)
  • Variance accounts pick up the differences between
    budget and actual

3
Production Variances
  • Direct materials
  • Price variance
  • Quantity variance
  • Direct labor
  • Rate variance
  • Efficiency variance
  • Variable overhead
  • Spending variance
  • Efficiency variance
  • Fixed overhead
  • Budget variance
  • Volume variance

The computations are similar to what we
illustrated for sales. You change one element at
a time and, from the difference, determine the
impact on costs (instead of sales)
4
Standard Budget is Different from Flexible Budget
  • In flexible budget is more OUTPUT oriented,
  • Standard budget is more INPUT oriented regarding
    production costs.
  • Interpretations are How efficiently firms use
    the materials, labors, and FOH.

5
Production variances
6
Direct Labor Example
  • Budgeted labor costs to make one widget
  • 2,200 widget production
  • ½ hour (manufacturing labor) hours
  • 20 per hour for manufacturing worker
  • Therefore, the standard DL cost per widget
    10
  • Assume actual production 2,000 widgets
  • 1,200 direct labor hours
  • Average rate of pay 19 per hour

7
DL variance example
8
DL variance example - solution
Rate Variance 1,200 F
9
Example
  • ABC company manufactures a product that has the
    direct materials, standard cost presented below.
    Find the price and efficiency variance for direct
    materials and direct labors.
  • Standard cost for direct materials direct
    labors
  • 1.60 lbs. _at_ 2.50 per lb. 4.00
  • 30 min. _at_ 10 per hr.

10
Exam Topics
  • Multiple Choice Problems 15 _at_ 2 points
  • Operating Budget Process
  • Cash Budget
  • Performance Analysis Variance Analysis
  • ABC Costing
  • Break-Even-Point
  • Variable-Absorption Costing