Manerial accounting 11e garrison noreen brewer chap010

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11th Edition Chapter 10 McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Standard Costs and the Balanced Scorecard Chapter Ten McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Standard Costs Standards are benchmarks or “norms” for measuring performance Two types of standards are commonly used Quantity standards specify how much of an input should be used to make a product or provide a service McGraw-Hill/Irwin Cost (price) standards specify how much should be paid for each unit of the input Copyright © 2006, The McGraw-Hill Companies, Inc Standard Costs Amount Deviations from standard deemed significant are brought to the attention of management, a practice known as management by exception Standard Direct Labor Direct Material Manufacturing Overhead Type of Product Cost McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Variance Analysis Cycle Identify questions Receive explanations Take corrective actions Conduct next period’s operations Analyze variances Prepare standard cost performance report McGraw-Hill/Irwin Exh 10-1 Begin Copyright © 2006, The McGraw-Hill Companies, Inc Setting Standard Costs Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient future production McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Setting Standard Costs Should we use ideal standards that require employees to work at 100 percent peak efficiency? Engineer McGraw-Hill/Irwin I recommend using practical standards that are currently attainable with reasonable and efficient effort Managerial Accountant Copyright © 2006, The McGraw-Hill Companies, Inc Setting Direct Material Standards Price Standards Quantity Standards Final, delivered cost of materials, net of discounts Summarized in a Bill of Materials McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Setting Standards In In recent recent years, years, TQM TQM advocates advocates have have sought sought to to eliminate eliminate all all defects defects and and waste, waste, rather rather than than continually continually build build them them into into standards standards As As aa result result allowances allowances for for waste waste and and spoilage spoilage that that are are built built into into standards standards should should be be reduced reduced over over time time McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Setting Direct Labor Standards Rate Standards Time Standards Often a single rate is used that reflects the mix of wages earned Use time and motion studies for each labor operation McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc The Balanced Scorecard Jaguar Example Results Profit If number of cars sold and contribution per car increase, profits increase Profits Increase Contribution per car Number of cars sold Customer satisfaction with options Strategies Increase Options Increase Skills McGraw-Hill/Irwin Contribution Increases Number of options available Time to install option Satisfaction Increases Time Decreases Employee skills in installing options Copyright © 2006, The McGraw-Hill Companies, Inc Advantages of Graphic Feedback Tim e to Install an Option Time to Install in Minutes 35 30 25 20 15 10 5 10 Week When interpreting its performance, Jaguar will look for continual improvement It is easier to spot trends or unusual performance if this data is presented graphically McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Delivery Performance Measures Order Received Wait Time Goods Shipped Production Started Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery Cycle Time Process time is the only value-added time McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Delivery Performance Measures Order Received Wait Time Goods Shipped Production Started Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery Cycle Time Manufacturing Cycle = Efficiency McGraw-Hill/Irwin Value-added time Manufacturing cycle time Copyright © 2006, The McGraw-Hill Companies, Inc Quick Check  A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the throughput throughput time? time? a a 10.4 10.4 days days b b 0.2 0.2 days days c c 4.1 4.1 days days d d 13.4 13.4 days days McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Quick Check  A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the throughput throughput time? time? a a 10.4 10.4 days days b Throughput time b 0.2 0.2 days days= Process + Inspection + Move + Queue c c 4.1 4.1 days days= 0.2 days + 0.4 days + 0.5 days + 9.3 days = 10.4 days d d 13.4 13.4 days days McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Quick Check  A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the MCE? MCE? a a 50.0% 50.0% b b 1.9% 1.9% c c 52.0% 52.0% d d 5.1% 5.1% McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Quick Check  A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the MCE? MCE? a a 50.0% 50.0% MCE = Value-added time ÷ Throughput time b b 1.9% 1.9% = Process time ÷ Throughput time c c 52.0% 52.0% = 0.2 days ÷ 10.4 days = 1.9% d d 5.1% 5.1% McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Quick Check  A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the delivery delivery cycle cycle time? time? a a 0.5 0.5 days days b b 0.7 0.7 days days c c 13.4 13.4 days days d d 10.4 10.4 days days McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Check  Delivery cycleQuick time = Wait time + Throughput time = 3.0 days + 10.4 days = 13.4 days A A TQM TQM team team at at Narton Narton Corp Corp has has recorded recorded the the following following average average times times for for production: production: Wait 3.0 Wait 3.0 days days Inspection Inspection 0.4 0.4 days days Process Process 0.2 0.2 days days Move Move Queue Queue 0.5 0.5 days days 9.3 9.3 days days What What is is the the delivery delivery cycle cycle time? time? a a 0.5 0.5 days days b b 0.7 0.7 days days c c 13.4 13.4 days days d d 10.4 10.4 days days McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Appendix 10A Journal Entries to Record Variances We will use information form the Glacier Peak Outfitters example earlier in the chapter to illustrate journal entries for standard cost variances Recall the following: Material Material AQ AQ ×× AP AP == $1,029 $1,029 AQ AQ ×× SP SP == $1,050 $1,050 SQ SQ ×× SP SP == $1,000 $1,000 MPV MPV == $21 $21 FF MQV MQV == $50 $50 U U Labor Labor AH AH ×× AR AR == $26,250 $26,250 AH AH ×× SR SR == $25,000 $25,000 SH SH ×× SR SR == $24,000 $24,000 LRV LRV == $1,250 $1,250 U U LEV LEV == $1,000 $1,000 U U Now let’s prepare the entries to record the labor and material variances McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Appendix 10A Journal Entries to Record Variances GENERAL JOURNAL Date Description Raw Materials Post Ref Page Debit Credit 1,050 Materials Price Variance 21 Accounts Payable 1,029 To record the purchase of material Work in Process Materials Quantity Variance Raw materials 1,000 50 1,050 To record the use of material McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Appendix 10A Journal Entries to Record Variances GENERAL JOURNAL Date Description Work in Process Post Ref Page Debit 24,000 Labor Rate Variance 1,250 Labor Efficiency variance 1,000 Wages Payable Credit 26,250 To record direct labor Variable manufacturing overhead variances are usually not recorded in the accounts separately, but are determined as part of the general analysis of overhead that is covered in the next chapter McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Cost Flows in a Standard Cost System •• •• Inventories Inventories are are recorded recorded at at standard standard cost cost Variances Variances are are recorded recorded as as follows: follows:  Favorable Favorable variances variances are are credits, credits, representing representing savings savings in in production production costs costs  Unfavorable Unfavorable variances variances are are debits, debits, representing representing excess excess production production costs costs •• Standard Standard cost cost variances variances are are usually usually closed closed to to cost cost of of goods goods sold sold  Favorable Favorable variances variances decrease decrease cost cost of of goods goods sold sold  Unfavorable Unfavorable variances variances increase increase cost cost of of goods goods sold sold McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc End of Chapter 10 McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc
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