Standard costing variance analysis kaizen costing Chapter 16

Standards ≠Predetermined amount for what should happen ≠Quantity standard ≠Quantity of the resource that should be consumed ≠Cost standard ≠Cost per unit that should be paid for the resource ≠Provides a context for evaluating actual amounts

Standards ≠Advantages ≠Provides a context for evaluating actual amounts ≠Standard costs do not fluctuate ≠Simplified accounting ≠Less expensive than actual costing

Setting standards ≠Quantity standards ≠How much should be consumed? ≠Product/process analysis ≠Allowance for normal, unavoidable inefficiencies ≠Historical data ≠Is it still relevant?

Setting standards ≠Cost standards ≠What should a unit of the resource cost? ≠Normal quality ≠Normal quantity ≠Regular supplier ≠Same shipping method ≠Etc.

Setting standards ≠Other issues ≠What is normal? ≠Practical or perfection? ≠Who determines the standard? ≠Who is most familiar with the usage? ≠Who is most familiar with the cost?

Variance analysis ≠Comparison of standard to actual results ≠Quantity ≠Material quantity variance ≠Labor efficiency variance ≠Cost ≠Material cost variance ≠Labor rate variance

Variance analysis ≠Quantity variance formula ≠Standard price * (actual – standard quantity) ≠Notice what is in the parentheses ≠Cost variance formula ≠Actual quantity * (actual – standard cost) ≠Notice what is in the parentheses ≠I pay for the actual amount I purchase

Variance analysis ≠Favorable or unfavorable? ≠Favorable if actual is less than standard ≠Implies efficiency or cost savings ≠Unfavorable if actual is greater than standard ≠Implies waste or excessive cost ≠Does not mean “good” or “bad” ≠Any variance is a deviation from what was supposed to happen

Variance analysis ≠Responsibility ≠Why did the variance occur? ≠Usage issue ≠Efficiency or inefficiency ≠Quality issue ≠Different material or labor mix ≠Quantity issue ≠Discount or surcharge

Variance analysis

≠Now what? ≠Investigation of variances ≠Variance size ≠Cost/benefit of analysis ≠Offsetting variances ≠Controllability ≠Interactions and tradeoffs ≠Recurring variances

Variance analysis ≠Criticisms ≠Variances can be too aggregated ≠Work best in stable, mass production environment ≠Focus on cost minimization, not qualitative issues ≠Greater automation reduces variances ≠Standards are often relevant for only a short time

Standard cost accounting ≠Use of standard costs reduces period-to-period fluctuations ≠Standard costs are debited to inventory and CofGS accounts ≠Variance is the difference between the debit to inventory and the credit ≠Variances are closed to CofGS at end of period ≠Favorable variances decrease CoGS ≠Unfavorable variances increase CofGS

Kaizen costing ≠Form of continuous improvement ≠Process ≠Cost reduction goal is established ≠Actual costs are compared to goal ≠Actual cost achieved by year end becomes the base for next year’s reduction target