Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,

Slides:



Advertisements
Similar presentations
Principles of Cost Accounting, 16th Edition, Edward J. VanDerbeck, ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Advertisements

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 23 1.
Kinney ● Raiborn Cost Accounting: Foundations and Evolutions, 8e © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Chapter 5: Job Order Costing
Kinney ● Raiborn Cost Accounting: Foundations and Evolutions, 8e © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Chapter 7: Standard Costing and Variance Analysis
19 Job Order Costing Accounting 26e C H A P T E R Warren Reeve Duchac
Accounting for Materials
Principles of Cost Accounting, 16th Edition, Edward J
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Principles of Cost Accounting, 16th Edition, Edward J
23 Performance Evaluation Using Variances from Standard Costs
Standard Costs and Balanced Scorecard
Chapter 6 Process Cost Accounting
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Principles of Cost Accounting, 16th Edition, Edward J
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Budgeting and Standard Cost Systems Chapter 13. Budgeting A budget is a financial and quantitative plan for the acquisition and use of resources Use for.
Principles of Cost Accounting, 16th Edition, Edward J
McGraw-Hill/IrwinCopyright ©2008 The McGraw-Hill Companies, Inc. All rights reserved. Fundamentals of Variance Analysis Chapter 16.
Cost Accounting: Foundations and Evolutions, 8e Kinney ● Raiborn © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Chapter 23 Flexible Budgets and Standard Cost Systems
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 25-1 Chapter 25 Standard Costs and Balanced Scorecard Accounting Principles, Ninth Edition.
Student Version © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted.
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Factory Overhead Planned, Applied & Actual
Performance Evaluation Through Standard Costs
11-1 Islamic University of Gaza Managerial Accounting Standard Costs and Balanced Scorecard Chapter 6 Dr. Hisham Madi.
McGraw-Hill /Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 Standard Costs.
Standard Costing and Variance Analysis
Needles Powers Crosson Principles of Accounting 12e Standard Costing and Variance Analysis 24 C H A P T E R © human/iStockphoto.
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011.
Chapter 8 © The McGraw-Hill Companies, Inc., 2007 McGraw-Hill /Irwin Standard Costs.
Accounting Principles Using Excel for Success PowerPoint Presentation by: Douglas Cloud, Professor Emeritus Accounting, Pepperdine University.
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Process Cost Accounting General Procedures
Chapter 23 Flexible Budgets and Standard Cost Systems.
Flexible Budgets and Standard Costs Chapter 24. Objective 1 Prepare a Flexible Budget for the Income Statement.
C Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Cornerstones of Managerial Accounting, 5e
Chapter 19 Manufacturing Overhead Standard Costs: Completing the Accounting Cycle for Standards costs.
Chapter 20: Standard Costing: A Managerial Control Tool
Principles of Cost Accounting 15th edition
Principles of Cost Accounting 15th edition
Chapter 22 Performance Evaluation Using Variances from Standard Costs
Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned,
17 Job Order Costing Financial and Managerial Accounting 13e
Performance Evaluation Using Variances from Standard Costs
Standard Cost Accounting Materials, Labor, and Factory Overhead
© 2017 by McGraw-Hill Education
Principles of Cost Accounting, 17th Edition, Edward J
© 2011 Cengage Learning. All Rights Reserved
Principles of Cost Accounting, 16th Edition, Edward J
Chapter 20: Standard Costing: A Managerial Control Tool
© 2017 by McGraw-Hill Education
Principles of Cost Accounting 15th edition
Principles of Cost Accounting 15th edition
2 Job Order Costing Managerial Accounting 13e C H A P T E R Warren
Presentation transcript:

Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1

Chapter 8 Standard Cost Accounting Materials, Labor, and Factory Overhead 2

Learning Objectives LO1Describe the different standards used in determining standard costs. LO2Determine procedures for recording standard costs. LO3Compute and analyze variances. LO4Prepare journal entries to record variances 3

Learning Objectives (cont.) LO5Examine and interpret variances. LO6Recognize the features of a standard cost system. LO7Account for standard costs in a departmentalized factory. LO8Distinguish between actual and applied overhead. 4

Learning Objectives (cont.) LO9Compute variances using the two-variance method. LO10Compute variances using the four- variance method. LO11Compute variances using the three-variance method. 5

Standard Cost Accounting Primary purpose is to control costs and promote efficiency. Primary purpose is to control costs and promote efficiency. This system is used in conjunction with other costing methods. This system is used in conjunction with other costing methods. It is based on predetermined rates. It is based on predetermined rates. Any deviation can be quickly detected and responsibility pinpointed so that appropriate action may be taken. Any deviation can be quickly detected and responsibility pinpointed so that appropriate action may be taken. 6

Control of Costs Stability of costs does not necessarily indicate efficiency. Stability of costs does not necessarily indicate efficiency. Comparison of actual costs to standard, rather than to historical cost, will help control costs and promote efficiency. Comparison of actual costs to standard, rather than to historical cost, will help control costs and promote efficiency. Standard costs are usually determined for a period of one year and are revised annually. Standard costs are usually determined for a period of one year and are revised annually. 7

Types of Standards A standard is a norm against which the actual performance can be measured. A standard is a norm against which the actual performance can be measured. Ideal standard – a standard that a company sets in which they meet their maximum degree of efficiency. Does not take inefficient conditions into consideration. Ideal standard – a standard that a company sets in which they meet their maximum degree of efficiency. Does not take inefficient conditions into consideration. Attainable standard – includes factors such as lost time and normal waste and spoilage. Attainable standard – includes factors such as lost time and normal waste and spoilage. 8

Standard Cost Procedures 1. Standard costs are determined for the three elements of cost – direct materials, direct labor, and factory overhead. 2. The standard costs, the actual costs, and the variance between the actual and standard costs are recorded in appropriate accounts. 3. Significant variances are analyzed and investigated and then appropriate action is taken. 9

Determining of Standard Costs for Materials and Labor Materials cost standard Materials cost standard Determined based on the production engineering department’s estimate of the amounts and types of materials needed. Determined based on the production engineering department’s estimate of the amounts and types of materials needed. Cost is based on the purchasing agent’s knowledge of suppliers’ prices. Cost is based on the purchasing agent’s knowledge of suppliers’ prices. Labor cost standard Labor cost standard Time-study engineers will establish the time necessary to perform each operation. Time-study engineers will establish the time necessary to perform each operation. Human resource department will provide the prevailing wage rates. Human resource department will provide the prevailing wage rates. 10

Recording Standard Costs for Materials and Labor Standard costs, actual costs, and the variances are recorded in various journals and transferred to the general ledger. Standard costs, actual costs, and the variances are recorded in various journals and transferred to the general ledger. The entries may occur more frequently, depending on the needs of management for current information and the capabilities of the accounting information system. The entries may occur more frequently, depending on the needs of management for current information and the capabilities of the accounting information system. 11

Determination of Variances A variance represents the difference between the actual and the standard costs of materials, labor, and overhead. A variance represents the difference between the actual and the standard costs of materials, labor, and overhead. The differences may be in usage and in prices. The differences may be in usage and in prices. Materials price variance Materials price variance Materials quantity variance Materials quantity variance Labor rate variance Labor rate variance Labor efficiency variance Labor efficiency variance 12

Materials Price Variance Indicates the difference between actual and standard unit cost times the actual quantity of materials used. Indicates the difference between actual and standard unit cost times the actual quantity of materials used. (Actual unit price of materials – standard price of materials) x actual quantity of materials used = Materials Price Variance (Actual unit price of materials – standard price of materials) x actual quantity of materials used = Materials Price Variance 13

Materials Quantity Variance Represents the difference between actual quantity of materials used and standard quantity allowed times the standard unit cost of materials. Represents the difference between actual quantity of materials used and standard quantity allowed times the standard unit cost of materials. (Actual quantity of materials used – standard quantity of materials allowed) x standard unit price of material = Materials Quantity Variance (Actual quantity of materials used – standard quantity of materials allowed) x standard unit price of material = Materials Quantity Variance 14

Labor Rate Variance Indicates the difference between actual and standard labor rate times the actual hours worked. Indicates the difference between actual and standard labor rate times the actual hours worked. (Actual labor rate per hour – standard labor rate per hour) x actual number of labor hours worked = Labor Rate Variance (Actual labor rate per hour – standard labor rate per hour) x actual number of labor hours worked = Labor Rate Variance 15

Labor Efficiency Variance Represents the difference between actual quantity of labor worked and standard quantity allowed times the standard rate per hour. Represents the difference between actual quantity of labor worked and standard quantity allowed times the standard rate per hour. (Actual number of labor hours worked – standard number of labor hours allowed) x standard labor rate per hour = Labor Efficiency Variance (Actual number of labor hours worked – standard number of labor hours allowed) x standard labor rate per hour = Labor Efficiency Variance 16

Materials Variances Actual cost (Actual quantity used x actual priced per unit) Actual quantity used x standard price per unit Equivalent production x Standard per unit x Standard price Net Materials Variance Materials Price VarianceMaterials Quantity Variance 17

Labor Variances Actual hours (Actual hours worked x actual rate per hour) Actual hours worked x standard price per hour Equivalent production x Standard hours per unit x Standard rate Net Labor Variance Labor Rate VarianceLabor Efficiency Variance 18

Accounting for Variances To record the entry for direct materials cost: Work in Process XX Materials Quantity Variance XX Materials Price Variance Materials Price VarianceXX Materials MaterialsXX To record the entry for direct labor cost: Work in Process XX Labor Rate Variance XX Labor Efficiency Variance Labor Efficiency VarianceXX Payroll PayrollXX To record the entry applying factory overhead to work in process: Work in Process XX Applied Factory Overhead Applied Factory OverheadXX To record the entry for finished goods at standard cost: Finished Goods XX Work in Process Work in ProcessXX 19

Disposition of Standard Cost Variances 1. Prorate the variances to Cost of Goods Sold, Work in Process, and Finished Goods in proportion to the standard materials, labor, and overhead costs included in the ending balances for those accounts. 2. Close the variance entirely to Cost of Goods Sold for the period. 3. If 2 (above) would materially misstate financial statements, prorate (1, above). 4. If production is seasonal or varies greatly, set up a deferred charges or credits on interim balance sheets, and dispose of at year end using one of the above methods. 5. If due to abnormal circumstances, charge off as extraordinary gains or losses on the income statement. 20

Examine and Interpret Variances Possible reasons for materials price variance. Possible reasons for materials price variance. 1. Inefficient purchasing methods; 2. Use of a slightly different material than the standard called for; and 3. Increase in market price. 21

Examine and Interpret Variances (cont.) Reasons for materials usage variance. Reasons for materials usage variance. 1. Materials were spoiled or wasted. 2. More materials were deliberately used as an experiment to determine if the product’s quality could be increased. 22

Features of Standard Cost Accounting 1. An actual unit cost of manufacturing a product is not determined – only the total cost. 2. Even though based on estimates, standards may be very reliable. 3. Standards must change as conditions change. 4. Standards provide incentives to keep costs and performance in line with predetermined management objectives. 5. Recording variances, helps management focus attention on prices paid and quantities purchased. 6. Variances may be calculated weekly or daily to facilitate corrective action, even when recorded monthly. 23

Journal Entries in a Standard Cost System Recording of materials cost in a standard cost system. Work in Process XX (Standard) Materials Quantity Variance XX (Unfavorable) XX (Favorable) Materials Price Variance XX (Unfavorable) XX (Favorable) Factory Overhead (Indirect Materials) XX Materials (Actual) Materials (Actual)XX Recording of labor in a standard cost system. Work in Process XX (Standard) Labor Rate Variance XX (Unfavorable) XX (Favorable Labor Efficiency Variance XX (Unfavorable) XX (Favorable) Factory Overhead (Indirect Labor) XX Payroll PayrollXX 24

Journal Entries in a Standard Cost System (cont.) Applying factory overhead to work in process. Work in Process (standard cost) XX Applied Factory Overhead Applied Factory OverheadXX Transfer to finished goods. Finished Goods (standard cost) XX Work in Process Work in ProcessXX Record actual factory overhead. Factory Overhead (actual) XX Various Credits Various CreditsXX 25

Factory Overhead – Determining Standard Costs Involves estimation of factory overhead at the standard level of production taking historical data and future changes into consideration. Involves estimation of factory overhead at the standard level of production taking historical data and future changes into consideration. Standard cost is applied to Work in Process based on number of units produced. Standard cost is applied to Work in Process based on number of units produced. Factory overhead is debited with actual costs and credited with standard costs. Factory overhead is debited with actual costs and credited with standard costs. 26

Two-Variance Method Divides the total variance into two parts. Divides the total variance into two parts. Controllable variance Controllable variance The amount by which the actual factory overhead costs differ from the standard overhead costs for the attained level of production. The amount by which the actual factory overhead costs differ from the standard overhead costs for the attained level of production. Volume variance Volume variance The difference between budgeted fixed overhead and the fixed overhead applied to work in process. The difference between budgeted fixed overhead and the fixed overhead applied to work in process. 27

Labor Variances Actual factory overhead Overhead budgeted for actual production Applied factory overhead Net factory overhead variance Controllable varianceVolume variance 28

Four-Variance Method Recognizes two variable cost variances and two fixed cost variances. Recognizes two variable cost variances and two fixed cost variances. Cost variances. Cost variances. Variable overhead spending variance Variable overhead spending variance Variable overhead efficiency variance Variable overhead efficiency variance Fixed cost variances. Fixed cost variances. Fixed overhead budget variance Fixed overhead budget variance Fixed overhead volume variance Fixed overhead volume variance 29

Three-Variance Method Separates actual and applied overhead into three variances. Separates actual and applied overhead into three variances. Budget variance or spending variance Budget variance or spending variance Capacity variance Capacity variance Efficiency variance Efficiency variance Not as common as two variance method but frequently used by manufacturers. Not as common as two variance method but frequently used by manufacturers. 30