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Managerial Accounting, 13 Edition,: Standard Costs and Operating Performance Measures

This chapter discusses standard costs and operating performance measures in managerial accounting. Standards specify the quantity and price of inputs that should be used to produce goods and services. Variances measure differences between actual and standard costs, and are analyzed to identify performance issues. Direct material, direct labor, and manufacturing overhead standards are set separately for price and quantity. Price variances measure differences in actual vs standard prices paid, while quantity variances measure differences in actual vs standard quantities used. Variances are analyzed in a cycle to address performance questions and take corrective actions.

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75 views

Managerial Accounting, 13 Edition,: Standard Costs and Operating Performance Measures

This chapter discusses standard costs and operating performance measures in managerial accounting. Standards specify the quantity and price of inputs that should be used to produce goods and services. Variances measure differences between actual and standard costs, and are analyzed to identify performance issues. Direct material, direct labor, and manufacturing overhead standards are set separately for price and quantity. Price variances measure differences in actual vs standard prices paid, while quantity variances measure differences in actual vs standard quantities used. Variances are analyzed in a cycle to address performance questions and take corrective actions.

Uploaded by

Ahsan Sayeed Nabeel Depro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Managerial Accounting, 13th Edition,

GARRISON/ NOREEN/ BREWER

Chapter 11
Standard Costs and Operating
Performance Measures
Standard Costs
Standards are benchmarks or norms for
measuring performance. In managerial
accounting, two types of standards are
commonly used-

Quantity standards: specify how much of an input


should be used to make a product or provide a service.
Price standards: specify how much should be paid for
each unit of the input.

Examples: Firestone, Sears, McDonalds, hospitals,


construction and manufacturing companies.
Standard Costs
Deviations from standards deemed significant
are brought to the attention of management, a
practice known as management by exception.

Standard
Amount

Direct
Material
Direct Manufacturing
Labor Overhead

Type of Product Cost


Variance Analysis Cycle
Take
Identify Receive corrective
questions explanations actions

Conduct next
Analyze periods
variances operations

Prepare standard
Begin
cost performance
report
Setting Standard Costs
Categories of standards-

Ideal Standards can only be attained under the best of


circumstances. They allow for no work interruptions
and they require employees to work at 100% peak
efficiency all of the time.

Practical standards are tight, but attainable. They


allow for normal machine downtime and employee
rest periods and can be attained through reasonable,
highly efficient efforts of the average worker.
Setting Direct Material Standards
Price Quantity
Standards Standards

Final, delivered Summarized in


cost of materials, a Bill of Materials.
net of discounts.
Setting Direct Labor Standards

Rate Time
Standards Standards

Often a single Use time and


rate is used that reflects motion studies for
the mix of wages earned. each labor operation.
Setting Variable Manufacturing
Overhead Standards
Rate Quantity
Standards Standards

The rate is the The quantity is


variable portion of the the activity in the
predetermined overhead allocation base for
rate. predetermined overhead.
Price and Quantity Standards
Price and quantity standards are determined separately
for two reasons:

1. The purchasing manager is responsible for raw


material purchase prices and the production
manager is responsible for the quantity of raw
material used.
2. The buying and using activities occur at different
times. Raw material purchases may be held in
inventory for a period of time before being used in
production.
A General Model for Variance
Analysis

Variance Analysis

Price Variance Quantity Variance

Difference between Difference between


actual price and actual quantity and
standard price standard quantity
A General Model for Variance
Analysis
Variance Analysis

Price Variance Quantity Variance

Materials price variance Materials quantity variance


Labor rate variance Labor efficiency variance
VOH rate variance VOH efficiency variance
A General Model for Variance
Analysis

Actual Quantity Actual Quantity Standard Quantity



Actual Price Standard Price Standard Price

Price Variance Quantity Variance


A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity

Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Actual quantity is the amount of direct


materials, direct labor, and variable
manufacturing overhead actually used.
A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity

Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Standard quantity is the standard quantity


allowed for the actual output of the period.
A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity

Actual Price Standard Price Standard Price

Price Variance Quantity Variance

Actual price is the amount actually


paid for the input used.
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 input used.
A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity

Actual Price Standard Price Standard Price

Price Variance Quantity Variance

(AQ AP) (AQ SP) (AQ SP) (SQ SP)


AQ = Actual Quantity SP = Standard Price
AP = Actual Price SQ = Standard Quantity

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