1. Pertemuan 7
Standard Costs

2. Standard Costs Predetermined.
Used for planning labor, material and overhead requirements.
Standard Costs are
Benchmarks for measuring performance.
Used to simplify the
accounting system.

3. Manufacturing Overhead
Standard Costs
Managers focus on quantities and costs that exceed standards, a practice known as management by exception.
Standard
Amount
Direct Material
Direct Labor
Manufacturing Overhead
Type of Product Cost

4. Setting Standard Costs
Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations.

5. Setting Standard Costs
Production Manager: “Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.”
Engineer&Managerial Accountant: “Should we use practical standards or ideal standards?”
HRD: ”I agree. Ideal standards, based on perfection, are unattainable and discourage most employees.”

6. Setting Direct Material Standards
Price Standards
Final, delivered cost of materials, net of discounts.
Quantity Standards
Use product design specifications.

7. Setting Direct Labor Standards
Rate Standards
Use wage surveys and labor contracts.
Time Standards
Use time and motion studies for each labor operation.

8. Setting Variable Overhead Standards
Rate Standards
The rate is the variable portion of the predetermined overhead rate.
Activity Standards
The activity is the base used to calculate the predetermined overhead.

9. Standard Cost Card – Variable Production Cost
A standard cost card for one unit of product might look like this:

10. Standards vs. Budgets A standard is a per unit cost.
Standards are often used when preparing budgets.
Are standards the same as budgets?
A budget is set for total costs.

11. Standard Cost Variances
A standard cost variance is the amount by which an actual cost differs from the standard cost.
This variance is unfavorable because the actual cost exceeds the standard cost.
Standard
Cost

12. Standard Cost Variances
First, they point to causes of problems and directions for improvement.
Second, they trigger investigations in departments having responsibility for incurring the costs.
I see that there is an unfavorable variance.
But why are variances important to me?

13. Variance Analysis Cycle
Identify questions
Receive explanations
Take corrective actions
Conduct next period’s operations
Analyze variances
Prepare standard cost performance report
Begin

14. Standard Cost Variances
Price Variance
The difference between the actual price and the standard price
Quantity Variance
The difference between the actual quantity and the standard quantity

15. A General Model for Variance Analysis
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Price Variance
Quantity Variance
Standard price is the amount that should have been paid for the resources acquired.

16. A General Model for Variance Analysis
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Standard quantity is the quantity allowed for the actual good output.
Standard input per unit of output times amount of good output.
Price Variance
Quantity Variance

17. A General Model for Variance Analysis
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Price Variance
Quantity Variance
AQ(AP - SP) SP(AQ - SQ)
AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity

18. Standard Costs
Let’s use the general model to calculate standard cost variances for direct material.

19. Material Variances Example
Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka.
0.1 kg. of fiberfill per parka at $5.00 per kg.
Last month 210 kgs of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029.

20. Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
210 kgs kgs kgs × × × $4.90 per kg $5.00 per kg $5.00 per kg.
= $1, = $1, = $1,000
Price variance $21 favorable
Quantity variance $50 unfavorable

21. Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
210 kgs kgs kgs × × × $4.90 per kg $5.00 per kg $5.00 per kg.
= $1, = $1, = $1,000
$1,029  210 kgs = $4.90 per kg
Price variance $21 favorable
Quantity variance $50 unfavorable

22. Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
210 kgs kgs kgs × × × $4.90 per kg $5.00 per kg $5.00 per kg.
= $1, = $1, = $1,000
0.1 kg per parka  2,000 parkas = 200 kgs
Price variance $21 favorable
Quantity variance $50 unfavorable

23. Note: Using the formulas
Materials price variance
MPV = AQ (AP - SP)
= 210 kgs ($4.90/kg - $5.00/kg)
= 210 kgs (-$0.10/kg)
= $21 F
Materials quantity variance
MQV = SP (AQ - SQ)
= $5.00/kg (210 kgs-(0.1 kg/parka 2,000 parkas))
= $5.00/kg (210 kgs kgs)
= $5.00/kg (10 kgs)
= $50 U

24. Quick Check 
Suppose only 190 kgs of fiberfill were used to make 2,000 parkas. What is the materials quantity variance? Remember that the standards call for 0.1 kg of fiberfill per parka at a cost of $5 per kg of fiberfill.
a. $50 F
b. $50 U
c. $100 F
d. $100 U
MQV = SP (AQ - SQ)
= $5.00/kg (190 kgs-(0.1 kg/parka 2,000 parkas))
= $5.00/kg (190 kgs kgs)
= $5.00/kg (-10 kgs)
= $50 F

25. Material Variances Example
Zippy
Material Variances Example
Hanson Inc. has the following direct material standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630.

26. Quick Check 
Zippy
What is the actual price per pound paid for the material?
a. $4.00 per pound.
b. $4.10 per pound.
c. $3.90 per pound.
d. $6.63 per pound.

27. Quick Check 
Zippy
What is the actual price per pound paid for the material?
a. $4.00 per pound.
b. $4.10 per pound.
c. $3.90 per pound.
d. $6.63 per pound.
AP = $6,630 ÷ 1,700 lbs. AP = $3.90 per lb.

28. Quick Check  Hanson’s material price variance (MPV) for the week was:
Zippy
Hanson’s material price variance (MPV) for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.

29. Quick Check  Hanson’s material price variance (MPV) for the week was:
Zippy
Hanson’s material price variance (MPV) for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($ ) MPV = $170 Favorable

30. Quick Check 
Zippy
The standard quantity of material that should have been used to produce 1,000 Zippies is:
a. 1,700 pounds.
b. 1,500 pounds.
c. 2,550 pounds.
d. 2,000 pounds.

31. Quick Check 
Zippy
The standard quantity of material that should have been used to produce 1,000 Zippies is:
a. 1,700 pounds.
b. 1,500 pounds.
c. 2,550 pounds.
d. 2,000 pounds.
SQ = 1,000 units × 1.5 lbs per unit SQ = 1,500 lbs

32. Quick Check 
Zippy
Hanson’s material quantity variance (MQV) for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.

33. Material Variances Summary
Zippy
Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
1,700 lbs ,700 lbs ,500 lbs × × × $3.90 per lb $4.00 per lb $4.00 per lb.
= $6, = $ 6, = $6,000
Price variance $170 favorable
Quantity variance $800 unfavorable

34. Material Variances Continued
Zippy
Material Variances Continued
Hanson Inc. has the following material standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies.

35. Material Variances Continued
Zippy
Material Variances Continued
Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price
2,800 lbs ,800 lbs × × $3.90 per lb $4.00 per lb.
= $10, = $11,200
Price variance $280 favorable
Price variance increases because quantity purchased increases.

36. Material Variances Continued
Zippy
Material Variances Continued
Actual Quantity Used Standard Quantity × × Standard Price Standard Price
1,700 lbs ,500 lbs × × $4.00 per lb $4.00 per lb.
= $6, = $6,000
Quantity variance is unchanged because actual and standard quantities are unchanged.
Quantity variance $800 unfavorable

37. Note Materials variances: Labor variances: Material price variance
MPV = AQ (AP - SP)
Material quantity variance
MQV = SP (AQ - SQ)
Labor variances:
Labor rate variance
LRV = AH (AR - SR)
Labor efficiency variance
LEV = SR (AH - SH)
Actual hours
Actual rate
Standard rate
Standard hours allowed for the actual good output

38. Labor Variances Example
Zippy
Hanson Inc. has the following direct labor standard to manufacture one Zippy:
1.5 standard hours per Zippy at $12.00 per direct labor hour
Last week 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies.

39. Quick Check 
Zippy
What was Hanson’s actual rate (AR) for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.

40. Quick Check 
Zippy
What was Hanson’s actual rate (AR) for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.
AR = $18,910 ÷ 1,550 hours AR = $12.20 per hour

41. Quick Check  Hanson’s labor rate variance (LRV) for the week was:
Zippy
Hanson’s labor rate variance (LRV) for the week was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.

42. Quick Check  Hanson’s labor rate variance (LRV) for the week was:
Zippy
Hanson’s labor rate variance (LRV) for the week was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
LRV = AH(AR - SR) LRV = 1,550 hrs($ $12.00) LRV = $310 unfavorable

43. Quick Check 
Zippy
The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.

44. Quick Check 
Zippy
The standard hours (SH) of labor that should have been worked to produce 1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
SH = 1,000 units × 1.5 hours per unit SH = 1,500 hours

45. Quick Check 
Zippy
Hanson’s labor efficiency variance (LEV) for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.

46. Quick Check 
Zippy
Hanson’s labor efficiency variance (LEV) for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable

47. Labor Variances Summary
Zippy
Labor Variances Summary
Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate
1,550 hours ,550 hours ,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour
= $18, = $18, = $18,000
Rate variance $310 unfavorable
Efficiency variance $600 unfavorable

48. Labor Efficiency Variance – A Closer Look
Insufficient
demand
Poorly trained workers
Poor quality materials
Unfavorable Efficiency Variance
Poor supervision of workers
Poorly maintained equipment

49. Note Labor variances: Variable overhead variances:
Actual hours of the allocation base
Labor variances:
Labor rate variance
LRV = AH (AR - SR)
Labor efficiency variance
LEV = SR (AH - SH)
Variable overhead variances:
Variable overhead spending variance
VOSV = AH (AR - SR)
Variable overhead efficiency variance
VOEV = SR (AH Quick Check 
Actual variable overhead rate
Standard variable overhead rate
Standard hours allowed for the actual good output

50. Quick Check 
Zippy
Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.

51. Quick Check 
Zippy
Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.
SV = AH(AR - SR) SV = 1,550 hrs($ $3.00) SV = $465 unfavorable

52. Quick Check 
Zippy
Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable.
d. $150 favorable.

53. Quick Check 
Zippy
Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable.
d. $150 favorable.
1,000 units × 1.5 hrs per unit
EV = SR(AH - SH) EV = $3.00(1,550 hrs - 1,500 hrs) EV = $150 unfavorable

54. Variable Manufacturing Overhead Variances
Zippy
Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate
1,550 hours ,550 hours ,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour
= $5, = $4, = $4,500
Spending variance $465 unfavorable
Efficiency variance $150 unfavorable

55. Advantages of Standard Costs
Possible reductions in production costs
Advantages
Management by exception
Improved cost control and performance evaluation
Better Information for planning and decision making

56. Disadvantages of Standard Costs
Emphasis on negative may impact morale.
Favorable variances may be misinterpreted.
Potential Problems
Continuous improvement may be more important than meeting standards.
Standard cost reports may not be timely.
Emphasizing standards may exclude other important objectives.
Incentives to build
inventories.

57. Akhir Pertemuan 7: Terima kasih