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Hansen Aise Im Ch09
Hansen Aise Im Ch09
9 STANDARD COSTING
1
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
LEARNING GOALS
2
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
1. Tell how unit standards are set; why
standard costing systems are adopted.
2. State the purpose of a standard cost sheet.
3. Describe basic concepts underlying
variance analysis & explain how they are
used for control.
Continued
3
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
4. Compute materials & labor variances;
explain how they are used for control.
5. Calculate variable & fixed overhead
variances & give their definitions.
6. Prepare journal entries for variances
(Appendix).
5
QUESTIONS TO THINK ABOUT:
Blue Corn Foods
6
QUESTIONS TO THINK ABOUT:
Blue Corn Foods
7
QUESTIONS TO THINK ABOUT:
Blue Corn Foods
8
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
1
Tell how unit standards
are set; why standard
costing systems are
adopted.
9
LO 1
QUANTITY
QUANTITY STANDARDS:
STANDARDS:
Definition
Definition
10
LO 1
PRICE
PRICE STANDARDS:
STANDARDS: Definition
Definition
11
LO 1
12
LO 1
13
LO 1
14
LO 1
COST ASSIGNMENT
Standard costs are
readily available for
product costing in a
standard cost system.
EXHIBIT 9-1
15
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
16
LO 2
STANDARD
STANDARD COST
COST PER
PER UNIT:
UNIT:
Definition
Definition
17
LO 2
EXHIBIT 9-2
18
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
3 underlying variance
analysis & explain how
they are used for control.
19
LO 3
TOTAL
TOTAL BUDGET
BUDGET VARIANCE:
VARIANCE:
Definition
Definition
20
LO 3
The
The difference
difference between
between actual
actual &
&
planned
planned can
can be
be favorable
favorable (actual
(actual
price
price or
or usage
usage << standard)
standard) or
or
unfavorable
unfavorable (actual
(actual price
price or
or usage
usage
>> standard).
standard). Does
Does not
not mean
mean good
good or
or
bad!
bad!
21
LO 3
22
LO 3
Total Variance
= (AP X AQ) – (SP X SQ)
= Actual price x Actual quantity
– Standard Price x Standard Quantity
23
LO 3
24
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
25
LO 4
Repeat:
Repeat: The
The difference
difference between
between
actual
actual &
& planned
planned can
can be
be favorable
favorable
(actual
(actual price
price or
or usage
usage << standard)
standard)
or
or unfavorable
unfavorable (actual
(actual price
price or
or
usage
usage >> standard).
standard). Does
Does not
not mean
mean
good
good or
or bad!
bad!
26
LO 4
BLUE-CORN
BLUE-CORN FOODS,
FOODS, INC.:
INC.:
Background
Background
Information for actual
production, cost of
corn, & inspectors.
27
LO 4
EXHIBIT 9-5
28
LO 4
MATERIALS VARIANCES
Decompose total
materials variance
into price & usage
variances.
EXHIBIT 9-6
29
LO 4
MPV
= (AQ X AP) – (AQ X SP)
= (AP – SP)AQ
= ($0.0069 - $0.0060) 780,000
= $ 702 U
30
LO 4
31
LO 4
MPV AS PERFORMANCE
EVALUATION
Limitations
Limitations on
on using
using price
price variance
variance in
in
performance
performance evaluation:
evaluation: buying
buying lower
lower
quality
quality or
or too
too much
much inventory.
inventory. Results
Results
of
of investigation
investigation show
show shortage
shortage of
of usual
usual
grade
grade of
of corn;
corn; purchasing
purchasing agent
agent has
has nono
control
control over
over supply.
supply.
32
LO 4
MUV
= (AQ X SP) – (SQ X SP)
= (AQ – SQ)SP
= (780,000 – 873,000) $0.006
= $ 558 F
33
LO 4
34
LO 4
35
LO 4
LABOR VARIANCES
Decompose total
labor variance into
rate & efficiency
variances.
EXHIBIT 9-7
36
LO 4
LRV
= (AH X AR) – (AH X SR)
= (AR – SR)AH
= ($7.35 - $7.00) 360
= $ 126 U
37
LO 4
38
LO 4
LEV
= (AH X SR) – (SH X SR)
= (AH – SH)SR
= (360 – 339.5) $7
= $ 143.50 U
39
LO 4
40
LO 4
41
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
5 fixed overhead
variances & give their
definitions.
42
LO 5
43
LO 5
44
LO 5
VARIABLE OVERHEAD
VARIANCE
Decomposes total
variable overhead
variance into
spending &
efficiency
variances.
EXHIBIT 9-8
45
LO 5
Spending Variance
= (AVOR X AH) – (SVOR X AH)
= (AVOR – SVOR)AH
= ($4.00 - $3.85) 400
= $ 60 U
46
LO 5
VARIABLE OVERHEAD
SPENDING VARIANCE
Variable
Variable overhead
overhead spending
spending variance
variance
arises
arises because
because prices
prices change.
change. ItIt
includes
includes things
things such
such as
as indirect
indirect
materials,
materials, indirect
indirect labor,
labor, electricity
electricity
maintenance,
maintenance, etc.
etc. Increase
Increase oror decrease
decrease
in
in these
these items
items is
is beyond
beyond control
control of
of
managers.
managers.
47
LO 5
Efficiency Variance
= (AH – SH)SVOR
= (400 – 378.3) $3.85
= $ 84 U
48
LO 5
Actual Results
49
LO 5
50
LO 5
51
LO 5
EXHIBIT 9-11
52
LO 5
Fixed
Fixed overhead
overhead spending
spending variance
variance is is the
the
difference
difference between
between actual
actual and
and
budgeted
budgeted fixed
fixed overhead.
overhead. ItIt includes
includes
things
things such
such as
as salaries,
salaries, depreciation,
depreciation,
taxes,
taxes, and
and insurance.
insurance. Increase
Increase oror
decrease
decrease in
in these
these items
items is
is beyond
beyond
control
control of
of managers.
managers.
53
LO 5
Volume Variance
= Budgeted – Applied fixed overhead
= $479,970 - $687,473
= $62,497 U
54
LEARNING
LEARNING OBJECTIVE
OBJECTIVE
6
Prepare journal entries
for variances
(Appendix).
55
LO 6
JOURNAL ENTRIES
Blue
Blue Corn
Corn must
must write
write journal
journal entries
entries
to
to enter
enter information
information forfor variances
variances
into
into accounting
accounting records.
records. Variances
Variances
are
are closed
closed into
into Cost
Cost ofof Goods
Goods Sold.
Sold.
56
CHAPTER 9
THE
THE END
END
57