1. Paper F2 Management Accounting
2018/12/9

2. Chapter 20 Standard costing
2018/12/9

3. Standard costing Chapter Preview Standard cost card Setting standards
Price Standards
Quantity
standards
2018/12/9
Ji Weili, JXUFE

4. Standard Costs Based on carefully predetermined amounts.
Standard Costs are
Used for planning labor, material and overhead requirements.
The expected level of performance.
Benchmarks for measuring performance.
2018/12/9
Ji Weili, JXUFE

5. Standard Costing A control technique via: Setting standards
Variance analysis
Corrective action
Standard Costing is
Used for stocks valuation as
an alternative method to
methods like FIFO and LIFO.
2018/12/9
Ji Weili, JXUFE

6. Setting Standard Costs
Practical standards should be set at levels that are currently attainable with reasonable and
efficient effort.
Should we use practical standards or ideal standards?
When the standard cost team gets together, perhaps the first question they have to answer is, do they want to develop a practical standard or an ideal standard. Most members of the team would argue that the standards should be practical; they should be attainable with a reasonable amount of efficient effort.
Production Manager
Managerial Accountant
Engineer
2018/12/9
Ji Weili, JXUFE

7. Setting Standard Costs
I agree. Ideal standards, that are based on perfection, are unattainable and therefore discouraging to most employees.
An ideal standard is based upon perfection, and is thus unattainable. This can have the effect of discouraging and demoralizing employees.
Human Resources Manager
2018/12/9
Ji Weili, JXUFE

8. Setting Direct Material Standards
Price Standards
Quantity Standards
Use product design specifications.
Use competitive bids for the quality and quantity desired.
When we think of direct materials standards, we think of price standards that represent the final delivered cost, net of any applicable discounts. Standard quantities are amounts needed to meet the production designs.
2018/12/9
Ji Weili, JXUFE

9. Setting Direct Material Standards
The standard material cost for one unit of product is:
standard quantity standard price for of material one unit of material required for one unit of product ×
We can combine the price standard and the quantity standard to get the standard material cost for one unit of product. The standard material cost for a unit of product is the standard price for one unit of material multiplied by the standard quantity of material required for each unit of product.
2018/12/9
Ji Weili, JXUFE

10. Setting Direct Labor Standards
Time Standards
Rate Standards
Use time and motion studies for each labor operation.
Use wage surveys and labor contracts.
Instead of the terms price and quantity used for material, we use rate and time when we apply standard cost concepts to direct labor. Labor rates can be determined by wage surveys of rates paid in comparable companies or by labor contracts. We can use time and motion studies to determine how to best manufacture the product using our direct labor.
2018/12/9
Ji Weili, JXUFE

11. Setting Direct Labor Standards
The standard labor cost for one unit of product is:
standard number standard wage rate of labor hours for one hour for one unit of product ×
We can combine the labor rate standard and the labor time standard to get the standard labor cost for one unit of product. The standard labor cost for a unit of product is the standard rate for one hour of direct labor multiplied by the standard time required for each unit of product.
2018/12/9
Ji Weili, JXUFE

12. Setting Variable Overhead Standards
Activity Standards
Rate Standards
The activity is the cost driver used to calculate the predetermined overhead.
The rate is the variable portion of the predetermined overhead rate.
For variable manufacturing overhead, we use a rate standard which is the variable portion of the predetermined overhead rate. The activity standard is the units of activity in the base used to apply our predetermined overhead. Examples of the activity base might be direct labor hours or machine hours.
2018/12/9
Ji Weili, JXUFE

13. Setting Variable Overhead Standards
The standard variable overhead cost for one unit of product is:
standard variable standard number overhead rate for of activity units one unit of for one unit of activity product ×
As with material and labor, we can combine the standard variable overhead rate and the standard number of activity units for variable overhead to get the standard variable overhead for one unit of product. The standard variable overhead cost for a unit of product is the standard variable overhead rate labor multiplied by the standard number of activity units for each unit of product ×
2018/12/9
Ji Weili, JXUFE

14. A standard cost card might look like this:
A standard cost card might look like the one shown on the screen. First, we see a standard quantity. In this case, direct materials is expressed in terms of pounds, direct labor in hours, and variable manufacturing overhead in hours. Second, we have a standard price or standard rate, and finally, we have a standard cost per unit.
2018/12/9
Ji Weili, JXUFE

15. End of Chapter 20
I Need Some Help!
2018/12/9
Ji Weili, JXUFE