Pertemuan 7 Standard Costs Standard Costs Predetermined Standard

Pertemuan 7 Standard Costs

Standard Costs Predetermined. Standard Costs are Used for planning labor, material and overhead requirements. Benchmarks for measuring performance. Used to simplify the accounting system. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Costs Amount Managers focus on quantities and costs that exceed standards, a practice known as management by exception. Standard Direct Labor Direct Material Manufacturing Overhead Type of Product Cost Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Setting Standard Costs Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Setting Standard Costs Engineer&Managerial Accountant: “Should we use practical standards or ideal standards? ” Production Manager: “Practical standards should be set at levels that are currently attainable with reasonable and efficient effort. ” HRD: ”I agree. Ideal standards, based on perfection, are unattainable and discourage most employees. ” Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Setting Direct Material Standards Price Standards Final, delivered cost of materials, net of discounts. Mc. Graw-Hill/Irwin Quantity Standards Use product design specifications. © The Mc. Graw-Hill Companies, Inc. , 2003

Setting Direct Labor Standards Rate Standards Time Standards Use wage surveys and labor contracts. Use time and motion studies for each labor operation. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Setting Variable Overhead Standards Rate Standards Activity Standards The rate is the variable portion of the predetermined overhead rate. The activity is the base used to calculate the predetermined overhead. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this: Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Standards vs. Budgets Are standards the same as budgets? A budget is set for total costs. Mc. Graw-Hill/Irwin A standard is a per unit cost. Standards are often used when preparing budgets. © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Cost Variances A standard cost variance is the amount by which an actual cost differs from the standard cost. Cost Standard Mc. Graw-Hill/Irwin This variance is unfavorable because the actual cost exceeds the standard cost. © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Cost Variances I see that there is an unfavorable variance. But why are variances important to me? Mc. Graw-Hill/Irwin First, they point to causes of problems and directions for improvement. Second, they trigger investigations in departments having responsibility for incurring the costs. © The Mc. Graw-Hill Companies, Inc. , 2003

Variance Analysis Cycle Identify questions Receive explanations Conduct next period’s operations Analyze variances Begin Mc. Graw-Hill/Irwin Take corrective actions Prepare standard cost performance report © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Cost Variances Price Variance Quantity Variance The difference between the actual price and the standard price The difference between the actual quantity and the standard quantity Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Variance Standard Quantity × Standard Price Quantity Variance Standard price is the amount that should have been paid for the resources acquired. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Standard Quantity × Standard Price Variance Quantity Variance Standard quantity is the quantity allowed for the actual good output. Standard input per unit of output times amount of good output. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

A General Model for Variance Analysis Actual Quantity × Actual Price Actual Quantity × Standard Price Standard Quantity × Standard Price Variance Quantity Variance AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity AP = Actual Price Mc. Graw-Hill/Irwin SP = Standard Price SQ = Standard Quantity © The Mc. Graw-Hill Companies, Inc. , 2003

Standard Costs Let’s use the general model to calculate standard cost variances for direct material. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Summary Actual Quantity × Actual Price Actual Quantity × Standard Price 210 kgs. × $4. 90 per kg. 210 kgs. × $5. 00 per kg. = $1, 029 Price variance $21 favorable Mc. Graw-Hill/Irwin = $1, 050 Standard Quantity × Standard Price 200 kgs. × $5. 00 per kg. = $1, 000 Quantity variance $50 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Summary Actual Quantity × Actual Price 210 kgs. × $4. 90 per kg. Actual Quantity × Standard Price 210 kgs. $1, 029 × 210 kgs $5. 00 per perkg kg. = $4. 90 = $1, 029 Price variance $21 favorable Mc. Graw-Hill/Irwin = $1, 050 Standard Quantity × Standard Price 200 kgs. × $5. 00 per kg. = $1, 000 Quantity variance $50 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Summary Actual Quantity × Actual Price Actual Quantity × Standard Price Standard Quantity × Standard Price 210 kgs. 200 kgs. × × 0. 1 kg per parka× 2, 000 parkas $4. 90 per kg. $5. 00 per kg. = 200 per kgs kg. = $1, 029 Price variance $21 favorable Mc. Graw-Hill/Irwin = $1, 050 = $1, 000 Quantity variance $50 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

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 - 200 kgs) = $5. 00/kg (10 kgs) = $50 U Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. MQV $50= U SP (AQ - SQ) = $5. 00/kg (190 kgs-(0. 1 kg/parka 2, 000 parkas)) c. $100 F = $5. 00/kg (190 kgs - 200 kgs) = $5. 00/kg (-10 kgs) d. $100 U = $50 F Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Example Zippy 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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy What is the actual price per pound paid for the material? a. $4. 00 per pound. b. $4. 10 per pound. AP = $6, 630 ÷ 1, 700 lbs. c. $3. 90 per pound. AP = $3. 90 per lb. d. $6. 63 per pound. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. MPV = AQ(AP - SP) MPV = 1, 700 lbs. × ($3. 90 - 4. 00) d. $800 favorable. MPV = $170 Favorable Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. SQ = 1, 000 units × 1. 5 lbs per unit d. 2, 000 pounds. SQ = 1, 500 lbs Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Summary Zippy Actual Quantity × Actual Price Actual Quantity × Standard Price 1, 700 lbs. × $3. 90 per lb. 1, 700 lbs. × $4. 00 per lb. 1, 500 lbs. × $4. 00 per lb. = $6, 630 = $ 6, 800 = $6, 000 Price variance $170 favorable Mc. Graw-Hill/Irwin Standard Quantity × Standard Price Quantity variance $800 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Continued Zippy 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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Continued Actual Quantity Purchased × Actual Price Actual Quantity Purchased × Standard Price 2, 800 lbs. × $3. 90 per lb. 2, 800 lbs. × $4. 00 per lb. = $10, 920 = $11, 200 Price variance $280 favorable Mc. Graw-Hill/Irwin Zippy Price variance increases because quantity purchased increases. © The Mc. Graw-Hill Companies, Inc. , 2003

Material Variances Continued Actual Quantity Used × Standard Price Standard Quantity × Standard Price 1, 700 lbs. × $4. 00 per lb. 1, 500 lbs. × $4. 00 per lb. = $6, 800 = $6, 000 Quantity variance is unchanged because actual and standard quantities are unchanged. Mc. Graw-Hill/Irwin Zippy Quantity variance $800 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Note Materials variances: l l Material price variance l MPV = AQ (AP - SP) Material quantity variance l MQV = SP (AQ - SQ) Labor variances: l l Labor rate variance l LRV = AH (AR - SR) Labor efficiency variance l LEV = SR (AH - SH) Mc. Graw-Hill/Irwin Actual hours Actual rate Standard hours allowed for the actual good output © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy What was Hanson’s actual rate (AR) for labor for the week? AR = $18, 910 ÷ 1, 550 hours a. $12. 20 per hour. AR = $12. 20 per hour b. $12. 00 per hour. c. $11. 80 per hour. d. $11. 60 per hour. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. LRV = AH(AR - SR) c. $300 unfavorable. LRV = 1, 550 hrs($12. 20 - $12. 00) d. $300 favorable. LRV = $310 unfavorable Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. SH = 1, 000 units × 1. 5 hours per unit d. 1, 800 hours. SH = 1, 500 hours Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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 Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Labor Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate 1, 550 hours × $12. 20 per hour 1, 550 hours × $12. 00 per hour = $18, 910 = $18, 600 Rate variance $310 unfavorable Mc. Graw-Hill/Irwin Zippy Standard Hours × Standard Rate 1, 500 hours × $12. 00 per hour = $18, 000 Efficiency variance $600 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Labor Efficiency Variance – A Closer Look Poorly trained workers Insufficient demand Poor quality materials Unfavorable Efficiency Variance Poor supervision of workers Mc. Graw-Hill/Irwin Poorly maintained equipment © The Mc. Graw-Hill Companies, Inc. , 2003

Note Labor variances: l l Labor rate variance l LRV = AH (AR - SR) Labor efficiency variance l LEV = SR (AH - SH) Actual hours of the allocation base Actual variable overhead rate Variable overhead variances: l l Standard variable overhead rate Variable overhead spending variance l VOSV = AH (AR - SR) Variable overhead efficiency variance l VOEV = SR (AH Quick Check Standard hours allowed for the actual good output Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. SV = AH(AR - SR) c. $335 unfavorable. SV = 1, 550 hrs($3. 30 - $3. 00) d. $300 favorable. SV = $465 unfavorable Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Quick Check Zippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. 1, 000 units × 1. 5 hrs per unit c. $150 unfavorable. d. $150 favorable. EV = SR(AH - SH) EV = $3. 00(1, 550 hrs - 1, 500 hrs) EV = $150 unfavorable Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Variable Manufacturing Overhead Variances Zippy Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 1, 550 hours × $3. 30 per hour 1, 550 hours × $3. 00 per hour 1, 500 hours × $3. 00 per hour = $5, 115 = $4, 650 = $4, 500 Spending variance $465 unfavorable Mc. Graw-Hill/Irwin Efficiency variance $150 unfavorable © The Mc. Graw-Hill Companies, Inc. , 2003

Advantages of Standard Costs Possible reductions in production costs Management by exception Advantages Improved cost control and performance evaluation Mc. Graw-Hill/Irwin Better Information for planning and decision making © The Mc. Graw-Hill Companies, Inc. , 2003

Disadvantages of Standard Costs Emphasis on negative may impact morale. Standard cost reports may not be timely. Incentives to build inventories. Mc. Graw-Hill/Irwin Potential Problems Favorable variances may be misinterpreted. Continuous improvement may be more important than meeting standards. Emphasizing standards may exclude other important objectives. © The Mc. Graw-Hill Companies, Inc. , 2003

Akhir Pertemuan 7: Terima kasih Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003