Chapter 11 Flashcards
Standard cost
Budget for a single unit of product
- develop a Standard Cost for each type of product
- becomes benchmark for evaluating actual costs
Ideal standards
Based on perfect or ideal conditions
Perfection standards
Do not allow for any poor-quality raw materials, waste, machine breakdown, or other inefficiencies
-lean production systems
Practical (attainable) standards
Based on currently attainable conditions
-allow for normal waste and inefficiency
Information used to develop and update standards
- past materials and labor usage
- current cost of inputs
- estimated future changed
- time and quality that should be needed to produce each unit
DM price variance
AQ(AP-SP)
Actual Quant.
x (Actual Price - Standard Price)
———————————————
= DM price variance
DM quantity variance
SP (AQ - SQA)
Standard Price
x (Act. Quantity - Standard Q. Allowed)
—————————————————-
= DM Quantity Variance
DL rate variance
Actual hours
x (actual rate-standard rate)
—————————
= DL rate variance
DL efficiency variance
Standard rate
x (actual hours-SHA)
————————————
= DL efficiency variance
Advantages of using standard costs and variances
- cost benchmarks
- usefulness in budgeting
- motivation
- simplified bookkeeping
Disadvantages of using standard costs and variances
- outdated/inaccurate standards
- lack of timeliness
- lean thinking
- increase in automation & decrease in DL
- unintended behavioral consequences
- focus on operational performance measures & visual thinking
Variable MOH rate variance
Act. hours(act. Rate-standard rate)
Variable MOH efficiency variance
Standard rate(act. hours - SHA)
Fixed MOH budget variance
Actual fixed MOH
-(budgeted fixed MOH)
——————————
= fixed MOH budgeted variance
Fixed MOH volume variance
Budgeted fixed MOH
- (SHA x SR)
————————————-
= fixed MOH volume variance
• Budgeted fixed MOH - Standard Fixed MOH
