To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER STANDARD COSTING: A MANAGERIAL CONTROL TOOL QUESTIONS FOR WRITING AND DISCUSSION Standard costs are essentially budgeted amounts on a per-unit basis Unit standards serve as inputs in building budgets 11 Managers generally tend to have more control over the quantity of an input used rather than the price paid per unit of input Unit standards are used to build flexible budgets Unit standards for variable costs are the variable cost component of a flexible budgeting formula 12 A standard cost variance should be investigated if the variance is material and if the benefit of investigating and correcting the deviation is greater than the cost The quantity decision is determining how much input should be used per unit of output The pricing decision determines how much should be paid for the quantity of input used 13 Control limits indicate how large a variance must be before it is judged to be material and the process is out of control Control limits are usually set by judgment although statistical approaches are occasionally used Historical experience is often a poor choice for establishing standards because the historical amounts may include more inefficiency than is desired 14 The materials price variance is often computed at the point of purchase rather than issuance because it provides control information sooner When this is done, the variance may be called the materials purchase price variance, and it is the responsibility of the purchasing manager rather than the production manager 15 Disagree A materials usage variance can be caused by factors beyond the control of the production manager, e.g., purchase of a lower-quality material than normal 16 Disagree Using higher-priced workers to perform lower-skilled tasks is an example of an event that will create a rate variance that is controllable 17 Some possible causes of an unfavorable labor efficiency variance are inefficient labor, machine downtime, and poor quality materials 18 Part of a variable overhead spending variance can be caused by inefficient use of overhead resources 19 Agree This variance, assuming that variable overhead costs increase as labor usage increases, is caused by the efficiency or inefficiency of labor usage Also labor may not be a good driver for variable overhead Engineering studies can serve as an important input to standard setting Many feel that this approach by itself may produce standards that are too rigorous Ideal standards are perfection standards, representing the best possible outcomes Currently attainable standards are standards that are challenging but allow some waste Currently attainable standards are often chosen because many feel they tend to motivate rather than frustrate Standard costing systems improve planning and control and facilitate product costing By identifying standards and assessing deviations from the standards, managers can locate areas where change or corrective behavior is needed Actual costing assigns actual manufacturing costs to products Normal costing assigns actual prime costs and estimated overhead costs to products Standard costing assigns estimated manufacturing costs to products 10 A standard cost sheet presents the standard amount of inputs and the price for each input and uses this information to calculate the unit standard cost 275 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 20 21 Fixed overhead costs are either committed or discretionary The committed costs will not differ by their very nature Discretionary costs can vary, but the level the company wants to spend on these items is decided at the beginning and usually will be met unless there is a conscious decision to change the predetermined levels The volume variance is caused by the actual volume differing from the expected volume used to compute the predetermined standard fixed overhead rate If the actual vo- 276 lume is different from the expected, then the company has either lost or earned a contribution margin The volume variance signals this outcome, and if the variance is large, then the loss or gain is large since the volume variance understates the effect 22 The spending variance is more important This variance is computed by comparing actual expenditures with budgeted expenditures The volume variance simply tells whether the actual volume is different from the expected volume To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com EXERCISES 9–1 d e d c e a 9–2 a The operating personnel of each cost center should be involved in setting standards They are the primary source for quantity information The materials manager and purchasing manager are a source of information for material prices, and personnel are knowledgeable on wage information The Accounting Department should be involved in overhead standards and should provide information about past prices and usage Finally, if information about absolute efficiency is desired, industrial engineers can provide important input b Standards should be attainable; they should include an allowance for waste, breakdowns, etc Market prices for materials as well as labor (unions) should be a consideration for setting standards Labor prices should include fringe benefits, and material prices should include freight, taxes, etc In principle, before formal responsibility is assigned, the causes of the variances must be known To be responsible, a manager must have the ability to control or influence the variance The following assignments of responsibility are general in nature and have exceptions: MPV: MUV: LRV: LEV: OH variances: Purchasing manager Production manager Production manager Production manager Departmental managers 277 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–3 SH = 1.5 × 1,700 = 2,550 hours SQ = × 1,700 = 6,800 components 9–4 SQ direct materials per unit = 340,000/40,000 = 8.5 oz per bunny SH direct labor hours per unit = 10,000/40,000 = 0.25 hrs per bunny Standard Cost for Dark Chocolate Bunny: Standard Price Direct materials $0.30 Direct labor 9.00 Total standard unit prime cost Standard Usage 8.50 oz 0.25 hr Standard Cost $2.55 2.25 $4.80 9–5 SQ = 8.5 × 47,000 = 399,500 oz SH = 0.25 × 47,000 = 11,750 hours Total standard prime cost = ($0.30 × 399,500) + ($9 × 11,750) = $225,600 9–6 Cases needing investigation: Week 1: Exceeds the 2,100 rule and the 5% rule Week 4: Exceeds the $2,100 rule and the 5% rule The installation and repair manager If the new workers are now properly trained, no corrective action is required If they are not, further training will be required to return to the direct labor hours normally used 278 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–7 Cases needing investigation: Week 2: Exceeds the 10% rule Week 4: Exceeds the $8,000 rule and the 10% rule Week 5: Exceeds the 10% rule The purchasing agent Corrective action would require a return to the purchase of the higher-quality material normally used Production engineering is responsible If the relationship is expected to persist, then the new labor method should be adopted, and standards for materials and labor need to be revised 9–8 MPV = (AP – SP)AQ = ($0.047 – $0.046)6,420,000 = $6,420 U MUV = (AQ – SQ)SP = (6,420,000 – 6,656,000*)$0.046 = $10,856 F * SQ = 52,000 × 128 = 6,656,000 LRV = (AR – SR)AH = ($12.50 – $12.00)2,000 = $1,000 U LEV = (AH – SH)SR = (2,000 – 1,976*)$12.00 = $288 U * SH = 52,000 × 0.038 = 1,976 279 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–9 Variable overhead analysis: Actual VOH $160,000 Budgeted VOH $3.00 × 52,000 $4,000 U Spending Applied Vstandard: $0.25 × 870,000 = $217,500 UCL: 0.08 × $217,500 = $17,400 LCL: ($17,400) Quantity standard: × 100,000 × $0.25 = $200,000 UCL: 0.08 × $200,000 = $16,000 LCL: ($16,000) Labor: Price standard: $7.50 × 44,000 = $330,000 UCL: 0.08 × $330,000 = $26,400 LCL: ($26,400) Quantity standard: 0.4 × 100,000 × $7.50 = $300,000 UCL: 0.08 × $300,000 = $24,000 LCL: ($24,000) 308 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–30 Continued June Materials: Price standard: $0.25 × 885,000 = $221,250 UCL: 0.08 × $221,250 = $17,700 LCL: ($17,700) Quantity standard: × 110,000 × $0.25 = $220,000 UCL: 0.08 × $220,000 = $17,600 LCL: ($17,600) Labor: Price standard: $7.50 × 46,000 = $345,000 UCL: 0.08 × $345,000 = $27,600 LCL: ($27,600) Quantity standard: 0.4 × 110,000 × $7.50 = $330,000 UCL: 0.08 × $330,000 = $26,400 LCL: ($26,400) April MPV MUV LRV LEV = ($0.2614 – $0.25)723,000 = $8,242 U = (723,000 – 720,000)$0.25 = $750 U = ($7.50 – $7.50)36,000 = = (36,000 – 36,000)$7.50 = May MPV MUV LRV LEV = ($0.2506 – $0.25)870,000 = $522 U = (870,000 – 800,000)$0.25 = $17,500 U = ($7.341 – $7.50)44,000 = $6,996 F = (44,000 – 40,000)$7.50 = $30,000 U ± 17,400 ± 16,000** ± 26,400 ± 24,000** June MPV MUV LRV LEV = ($0.2599 – $0.25)885,000 = $8,762 U = (885,000 – 880,000)$0.25 = $1,250 U = ($7.826 – $7.50)46,000 = $14,996 U = (46,000 – 44,000)$7.50 = $15,000 U ± 17,700 ± 17,600 ± 27,600 ± 26,400 Limit $ ± 14,460 ± 14,400 ± 21,600 ± 21,600 *The actual deviation divided by the total price or quantity **Investigate May’s MUV and LEV 309 Actual* 4.6% 0.4% 0.0 0.0 0.3% 8.8% (2.3%) 10.0% 4.0% 0.6% 4.5% 4.5% To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–30 Continued Control charts allow us to see when the variances are outside an acceptable range They may also show a pattern that may help in pinpointing when the problem began Control charts: To simplify the presentation, the variances are expressed as a percentage of the total quantity or price standard, and the Y-axis is used for variances These percentages were calculated in Requirement MPV: % 10.0 8.0 x x 0.0 x –8.0 APRIL MAY 310 JUNE To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–30 Continued MUV: % 10.0 x 8.0 0.0 x x –8.0 APRIL MAY 311 JUNE To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9–30 Continued LRV: % 10.0 8.0 x 0.0 x x –8.0 APRIL MAY 312 JUNE ... 1.16) Fixed overhead ($0 .98 37 × 1 .96 7)*** Cost per box Cost per bag ($12.0027/15) $3. 793 1 1 .98 00 1.6500 0.5200 $0. 091 2 0.2318 0.1652 0.3421 0.1534 $ 7 .94 31 0 .98 37 1.1410 1 .93 49 $12.0027 $ 0.8002 *Pounds... SH)SR = (2,000 – 1 ,97 6*)$12.00 = $288 U * SH = 52,000 × 0.038 = 1 ,97 6 2 79 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 9 9 Variable overhead... $2.55 2.25 $4.80 9 5 SQ = 8.5 × 47,000 = 399 ,500 oz SH = 0.25 × 47,000 = 11,750 hours Total standard prime cost = ($0.30 × 399 ,500) + ( $9 × 11,750) = $225,600 9 6 Cases needing investigation: Week