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Chapter 10

Chapter 10. Standard Costs. Standard Costs. Price standards Direct materials Direct labor Overhead Quantity standards Direct materials Direct labor Overhead Management by exception Ideal vs. practical standards. Setting Standards. Price/rate standards Direct materials

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Chapter 10

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  1. Chapter 10 Standard Costs

  2. Standard Costs • Price standards • Direct materials • Direct labor • Overhead • Quantity standards • Direct materials • Direct labor • Overhead • Management by exception • Ideal vs. practical standards

  3. Setting Standards • Price/rate standards • Direct materials • Price of material • Freight/shipping • Discounts • Storage/handling • Direct labor • Labor rate per hour • Overtime • Benefits • Taxes • Paid time off

  4. Setting Standards • Quantity/hours standards • Direct materials • Amount/Quantity used • Waste and spoilage • Rejects • Direct labor • Labor hours • Breaks • Downtime • Clean up • Rejects

  5. General Model for Variance AnalysisPage 431

  6. Materials • Materials price variance AQ x AP – AQ x SP or AQ(AP – SP) • Materials quantity variance AQ x SP – SQ x SP or SP(AQ – SQ)

  7. Labor • Labor rate variance AH x AR – AH x SR or AH(AR – SR) • Labor efficiency/hour variance AH x SR – SH x SR or SR(AH – SH)

  8. Variable Overhead • Variable overhead spending/rate variance AH x AR – AH x SR or AH(AR – SR) • Variable overhead efficiency/hour variance AH x SR – SH x SR or SR(AH – SH)

  9. Coach Keen Says…. • Review pages 424-440 • Read pages 441-450 • Read Appendix 10A, pages 458-460 • Attempt homework 10-7, 10-9, 10-10 Problem 10-13, page 466

  10. Coach Keen Says… • Work the review problems at the end of each chapter • Study for test by reviewing the chapters, homework, handouts, articles on WebCT, quizzes and problems done in class • Use the tutors • The workbook/study guide is available at the reserve desk at Milner Library • Chat on Tuesday night 9-11PM through WebCT • Extended office hours: Monday: 9:00-10:00 & 11:00-12:00 & 1:00-3:00 Tuesday 11:30-3:00 • E-mail questions • Review on Monday • Rest Tuesday night

  11. Appendix 10A • Journal entries • Materials price variance journal entry • Materials quantity variance journal entry • Labor efficiency and rate variance journal entry

  12. Problems with Standards • Variances are often reported too late to be useful. • Standards can undermine morale. • Labor efficiency standards encourage high output. This may lead to excessive work in process inventory. • A favorable quantity variance may be worse than an unfavorable quantity variance. • Quality may suffer if undue emphasis is placed on just meeting the standards. • Just meeting standards may not be sufficient; continual improvement is often necessary.

  13. Balanced Scorecard • Article

  14. Coach Keen Says…. • Review chapter text • Review Appendix 10A, pages 458-460 • Redo homework 10-3, 10-4, 10-7, 10-9, 10-10 • Read chapter 11 • Attempt homework 1, 2, 3, 4 & 7 Problem 10-19, page 470

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