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Cost Management ACCOUNTING AND CONTROL

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Presentation on theme: "Cost Management ACCOUNTING AND CONTROL"— Presentation transcript:

1 Cost Management ACCOUNTING AND CONTROL
HANSEN & MOWEN

2 Standard Costing: A Functional-Based Control Approach
CHAPTER 9 Standard Costing: A Functional-Based Control Approach

3 Standard price  Standard Quantity (SP  SP)
OBJECTIVE 1 Developing Unit Input Standards Price standards specify how much should be paid for the quantity of the input to be used. Quantity standards specify how much of the input should be used per unit of output. Unit standard cost is the product of these two standards: Standard price  Standard Quantity (SP  SP)

4 1 Developing Unit Input Standards
OBJECTIVE 1 Developing Unit Input Standards Ideal standards demand maximum efficiency and can be achieved only if everything operates perfectly. Currently attainable standards can be achieved under efficient operating conditions. Kaizen standards reflect a planned improvement and are a type of currently attainable standard.

5 1 Developing Unit Input Standards Usage of Standard Costing Systems
OBJECTIVE 1 Developing Unit Input Standards Usage of Standard Costing Systems Cost Management Planning and Control Decision Making and Product Costing

6 Cost Assignment Approaches
OBJECTIVE 1 Developing Unit Input Standards Cost Assignment Approaches

7 OBJECTIVE 2 Standard Cost Sheets Standard Cost Sheet for Deluxe Strawberry Frozen Yogurt

8 Total budget variance = (AP  AQ) – (SP  SQ)
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Total budget variance = (AP  AQ) – (SP  SQ) Performance Report: Total Budget Variances

9 Price and Usage Variances: Direct Materials
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Price and Usage Variances: Direct Materials MPV = (AP – SP)AQ MUV = (AQ– SQ)SP

10 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Accounting for the Direct Materials Price and Usage Variances

11 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Direct materials price variances can be computed at the point when the direct materials are issued into production OR when the materials are purchased. (This method would require AQ to be defined as the actual quantity purchased, rather than actual quantity used.

12 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Direct materials usage variances should be computed as direct materials are issued into production.

13 Rate and Efficiency Variances: Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Rate and Efficiency Variances: Direct Labor LRV = (AR – SR)AH LRV = (AR – SR)AH

14 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Accounting for the Direct Labor Rate and Efficiency Variances

15 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Investigating Direct Materials and Labor Variances: Because random variations around the standard are expected, management should establish an acceptable range of performance. The acceptable range is the standard, plus or minus an allowable deviation. The upper control limit is the standard plus the allowable deviation, and the lower control limit is the standard minus the allowable deviation.

16 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Disposition of Direct Materials and Direct Labor Variances - Immaterial

17 3 Variance Analysis and Accounting: Direct Materials and Direct Labor
OBJECTIVE 3 Variance Analysis and Accounting: Direct Materials and Direct Labor Disposition of Direct Materials and Direct Labor Variances - Material

18 Variable Overhead Analysis
OBJECTIVE 4 Variance Analysis: Overhead Costs Variable Overhead Analysis VOHSP= (AVOR – SVOR)AH VOHEV = (AH – SH)SVOR

19 Variable Overhead Spending Variance by Item
OBJECTIVE 4 Variance Analysis: Overhead Costs Variable Overhead Spending Variance by Item

20 4 Variance Analysis: Overhead Costs
OBJECTIVE 4 Variance Analysis: Overhead Costs Variable Overhead Spending and Efficiency Variance by Item aPer direct labor hour. bSpending variance = Actual costs - Budget for actual hours. cEfficiency variance = Budget for actual hours - Budget for standard hours.

21 4 Variance Analysis: Overhead Costs Fixed Overhead Analysis
OBJECTIVE 4 Variance Analysis: Overhead Costs Fixed Overhead Analysis FOHSP= AFOH – BFOH FOHVV = SFOHR  [SH(D) – SH]

22 OBJECTIVE 4 Variance Analysis: Overhead Costs

23 Graph of Fixed Overhead Variances
OBJECTIVE 4 Variance Analysis: Overhead Costs Graph of Fixed Overhead Variances

24 4 Variance Analysis: Overhead Costs Accounting for Overhead Variances
OBJECTIVE 4 Variance Analysis: Overhead Costs Accounting for Overhead Variances

25 4 Variance Analysis: Overhead Costs
OBJECTIVE 4 Variance Analysis: Overhead Costs Accounting for Overhead Variances (continued)

26 Two-Variance Analysis: Helado Company
OBJECTIVE 4 Variance Analysis: Overhead Costs Two-Variance Analysis: Helado Company

27 Three-Variance Analysis: Helado Company
OBJECTIVE 4 Variance Analysis: Overhead Costs Three-Variance Analysis: Helado Company

28 Standard Mix Information: Direct Materials
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Standard Mix Information: Direct Materials Direct Material Mix Mix Proportion SP Standard Cost Peanuts 128 lbs $0.50 $64 Almonds 32 lbs Total 160 lbs. $96 Yield 120 lbs. Yield ratio: (1.20/160) Standard cost of yield (SP): $0.80 per pound ($96/120 pounds of yield)

29 5 Mix and Yield Variances: Materials and Labor
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Malcom Nut Company produces a batch of 1,600 pounds and produces the following actual results: Direct Material Actual Mix Percentages Peanuts 1,120 lbs. 70 % Almonds Total 1,600 lbs. 100 % Yield 1,300 lbs %

30 5 Mix Variance = Σ(AQi – SMi)SPi
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Mix Variance = Σ(AQi – SMi)SPi Direct Material AQ SM AQ – SM SP (AQ – SM)SP Peanuts 1,120 1, $0.50 $-80 Almonds Mix variance $-80 U

31 5 Mix and Yield Variances: Materials and Labor
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Direct Materials Yield Variance Yield variance = (Standard yield – Actual yield) SPy Standard yield = Yield ratio x Total actual inputs Yield variance = (1,200 – 1,300)$0.80 = $80 F

32 5 Mix and Yield Variances: Materials and Labor
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Standard Mix Information Labor Type Mix Mix Proportion SP Standard Cost Shelling 3 hrs $ $24 Mixing 2 hrs Total 5 hrs. $54 Yield 120 lbs. Yield ratio: 24 = (120/5), or 2,400% Standard cost of yield (SPy ): $0.45 per pound ($54/120 pounds of yield)

33 5 Mix and Yield Variances: Materials and Labor Direct Labor Type
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Direct Labor Type Actual Mix Percentages* Shelling 20 hrs. 40% Mixing 30 hrs. 60% Total 50 hrs. 100% Yield 1,300 lbs. 2,600% *Uses 50 hours as the base.

34 5 Mix and Yield Variances: Materials and Labor
OBJECTIVE 5 Mix and Yield Variances: Materials and Labor Direct Labor Mix Variance Direct Labor Type AH SM AH – SM SP (AH – SM)/SP Shelling $ $-80 Mixing Direct Labor mix variance $-70 U Direct Labor Yield Variance Yield variance = (Standard yield – Actual yield)SPy = [(24 x 50) – 1,300]$0.45 = (1,200 – 1,300)$0.45 = $45 F

35 End of Chapter 9

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