Chapter-7-standard-costing-and-variance-analysis.pptx

STANDARD COSTING AND VARIANCE ANALYSIS JBCG

Introduction ◦Standard is a performance benchmark. ◦Businesses set standards for employee sales expenses; pizza restaurants set standards to prepare and bake pizza; and casino set standards for revenue to be generated per square foot of playing space.

Use of Standard Cost Systems ◦Motivating ◦Planning ◦Controlling ◦Variance analysis is the process of categorizing the nature of the differences between actual and standard costs.

◦Decision Making ◦Performance Evaluation

Considerations in Establishing Standards ◦Appropriateness ◦Attainability ◦Expected Standards ◦Practical Standards ◦Ideal Standards

Dev’t of Standard Cost System ◦Material Standards

◦Type of material needed ◦Quality (grade) of material needed ◦Quantity of material needed ◦Price per unit of material

◦Bill of materials – the specifications for materials. ◦Total cost of ownership (TCO) – includes price, freight, duty, tax charges, payment and discount terms, inventory storage costs, etc.

Dev’t of Standard Cost System ◦Labor Standards ◦Methods-time measurement – an industrial engineering process that analyzes work tasks to determine the time a trained worker needs to perform a given operation at a rate that can be sustained for an eight-hour workday. ◦Operations flow document – lists all tasks necessary to make one unit of product or perform a specific service.

Dev’t of Standard Cost System ◦Overhead standards ◦Most appropriate costing information will result when (1) overhead is assigned to separate cost pools based on cost drivers and (2) allocations are made using activity drivers directly related to the Overhead costs being assigned ◦Standard cost card is prepared that summarizes the standard quantities and costs needed to produce a unit.

General Variance Analysis Model ◦Total Variance ◦Price/Rate Variance and Quantity/Efficiency Variance

Material Variance ◦Material Price Variance ◦Material Quantity Variance ◦Point-of-Purchase Material Variance

Labor Variance ◦Labor Rate Variance ◦Labor Efficiency Variance

Variable Overhead Variance ◦Variable overhead spending variance ◦Variable overhead efficiency variance

Fixed Overhead Variance ◦Fixed overhead spending variance ◦Fixed overhead volume variance (noncontrollable variance)

Total Overhead Variance (2-way) ◦Budget Variance (Controllable Variance) ◦Volume Variance (noncontrollable variance)

Total Overhead Variance (3-way) ◦Budget Variance (Controllable Variance) ◦Overhead Spending Variance ◦Overhead Efficiency Variance

◦Volume Variance (noncontrollable variance)

Disposition of Standard Cost Variances ◦Immaterial or Insignificant – COGS ◦Significant Material Price Variances – Prorated to RM Inventory, WIP Inventory, FG Inventory and COGS ◦All other Significant Variances - Prorated to WIP Inventory, FG Inventory and COGS

CREATING A BETTER LEARNING EXPERIENCE

JBCG

Ďakujem za počúvanie