ch09 guan cm aise ppt
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COST MANAGEMENT
Guan Hansen Mowen
COPYRIGHT 2009 South-Western Publishing, a division of Cengage Learning.Cengage Learning and South-Western are trademarks used herein under license. 1
Chapter 9
Standard Costing: A Functional-Based Control Approach
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Study Objectives
1. Describe how unit input standards are developed, and
explain why standard costing systems are adopted.
2. Explain the purpose of a standard cost sheet.
3. Compute and journalize the direct materials and directlabor variances, and explain how they are used for
control.
4. Compute overhead variances three different ways, and
explain overhead accounting.
5. Calculate mix and yield variances for direct materials
and direct labor.
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Developing Unit Input Standards
Unit standard costis the product ofstandard price and standard quantity
Standard Standard
Price QuantitySP SQ
Quantity standardsspecify how much of the
input should be used per unit of output Price standardsspecify how much should be
paid for the quantity of the input to be used
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Developing Unit Input Standards
Ideal standardsdemand maximumefficiency and can be achieved only ifeverything operates perfectly.
Currently attainable standardscan beachieved under efficient operatingconditions.
Kaizen standardsreflect a plannedimprovement and are a type of currentlyattainable standard.
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Developing Unit Input Standards
Usage of standard costing systems
Cost management
Planning and control
Decision making and product costing
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Developing Unit Input Standards
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Standard Cost Sheets
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Total budget variance = (AP AQ) (SP SQ)
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Variance Analysis and Accounting:Direct Materials and Direct Labor
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Materials (SP AQ) 15,600
Direct Materials Price Variance (AP SP)AQ 3,900
Accounts Payable (AP AQ) 19,500
Work in Process (SQ SP) 15,600
Direct Materials Usage Variance (AQ SQ)SP 3,900Materials (AQ SP) 19,500
Accounting for the Direct Materials Price and
Usage Variances
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Variance Analysis and Accounting:Direct Materials and Direct Labor
Direct materials price variances can becomputed at the point
when the direct materials are issued intoproduction OR
when the materials are purchased
This method would require AQ to be defined as the
actual quantity purchased, rather than actualquantity used)
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Direct materials usage variancesshould be computed asdirect materials are issued into production.
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Variance Analysis and Accounting:Direct Materials and Direct Labor
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Accounting for the Direct Labor Rate
and Efficiency Variances
Work in Process (SH SR) 2,400
Direct Labor Rate Variance (AR SR)AH 65
Direct Labor Efficiency Variance (AH SH)SR 200
Wages Payable (AH AR) 2,665
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Variance Analysis and Accounting:Direct Materials and Direct Labor
Investigating direct materials and laborvariances
Because random variations around the standard are
expected, management should establish anacceptable range of performance.
The acceptable range is the standard, plus or minusan allowable deviation. The upper control limit is the standard plus the allowable
deviation
The lower control limit is the standard minus the allowabledeviation.
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Cost of Goods Sold 4,765
Direct Materials Price Variance 3,900Direct Materials Usage Variance 600
Direct Labor Rate Variance 65
Direct Labor Efficiency Variance 200
Disposition of Direct Materials and
Direct Labor Variances Immaterial
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Finished Goods 953Cost of Goods Sold 3,812
Direct Materials Price Variance 3,900
Direct Materials Usage Variance 600
Direct Labor Rate Variance 65
Direct Labor Efficiency Variance 200
Disposition of Direct Materials and
Direct Labor Variances Material
Prime Costs Percentage of Total
Work in Process $0 0%
Finished Goods 3,480 20
Cost of Goods Sold 13,920 80
Total $17,400 100%
Variance Analysis and Accounting:Direct Materials and Direct Labor
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Accounting for Overhead Variances
To recognize the incurrence of actual overhead:
Variable Overhead Control 7,540
Fixed Overhead Control 20,500
Miscellaneous Accounts 28,040
To recognize the variances:
Fixed Overhead Control 3,500
Variable Overhead Efficiency Variance 600
Fixed Overhead Spending Variance 500
Variable Overhead Control 340
Variable Overhead Spending Variance 260
Fixed Overhead Volume Variance 4,000
Variance Analysis: Overhead Costs
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Accounting for Overhead Variances(continued)
To close the variances to Cost of Goods Sold:
Fixed Overhead Volume Variance 4,000
Variable Overhead Spending Variance 260
Cost of Goods Sold 4,260
Cost of Goods Sold 1,100
Variable Overhead Efficiency Variance 600
Fixed Overhead Spending Variance 500
Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Variance Analysis: Overhead Costs
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Standard Mix Information: Direct Materials
Yield: 120 lbs.
Yield ratio: 0.75 (120 / 160)
Standard cost of yield (SPy): $0.80 per pound ($96 / 120 pounds of yield)
Direct
Material
Mix
Proportion SP
Standard
Cost
Peanuts 128 lbs 0.80 $0.50 $64.00Almonds 32 lbs 0.20 $1.00 32.00
160 $96.00
Mix
Mix and Yield Variances:Materials and Labor
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Malcom Nut Company produces a batch of 1,600pounds and produces the following actual results:
Mix and Yield Variances:Materials and Labor
Direct
Materials Percentages
Peanuts 1,120 lbs 70%
Almonds 480 lbs 30%
1,600 lbs 100%
Yield 1,300 lbs 81.3%
Actual
Mix
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Mix Variance= (AQi SM i)SPi
Direct
Materials AQ SM AQ-SM SP (AQ-SM)SP
Peanuts 1,120 1,280 (160) $0.50 (80)$
Almonds 480 320 160 $1.00 160$
Mix variance 80$ U
Mix and Yield Variances:Materials and Labor
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Yield variance= (Standard yield Actual yield) Spy
Standard yield = Yield ratio Total actual inputs
Yield variance = (1,200 1,300)$0.80
= $80 F
Direct Materials Yield Variance
Mix and Yield Variances:Materials and Labor
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Mix and Yield Variances:Materials and Labor
Standard Mix Information: Direct Labor
Yield: 120 lbs.
Yield ratio: 24 or 2400% (120 / 5)
Standard cost of yield (SPy): $0.45 per pound ($54 / 120 pounds of yield)
Labor
Type
Mix
Proportion SP
Standard
Cost
Shelling 3 hrs 0.60 $8.00 $24.00
Mixing 2 hrs 0.40 $15.00 30.00
5 $54.00
Mix
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Mix and Yield Variances:Materials and Labor
Direct
Labor
Type
Mix
Percen-
tages*
Shelling 20 hrs 40%Mixing 30 hrs 60%
50 hrs 100%
Yield 1,300 lbs 2600.0%
Actual
Mix
*uses 50 hours as the base
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Mix and Yield Variances:Materials and Labor
Direct
Labor
Type AH SM AH-SH SP (AH-SM)/SP
Shelling 20 30 (10) $8.00 (80)$
Mixing 30 20 10 $15.00 150$
Mix variance 70$ U
Yield variance= (Standard yield Actual yield)Spy
= [(24 50) 1,300]$0.45
= (1,200 1,300)$0.45
= $45 F
Direct Labor Yield Variance
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COST MANAGEMENT
Guan Hansen Mowen
COPYRIGHT 2009 South-Western Publishing, a division of Cengage Learning.Cengage Learning and South Western are trademarks used herein under license 35
End Chapter 9