Transcript Standard Costing: A Functional- Based Control

Standard
Costing: A
FunctionalBased Control
Approach
Prepared by
Douglas Cloud
Pepperdine University
9-1
Objectives
1. Describe how
unitstudying
input standards
are
After
this
developed, and
explain
why
standard
cost
chapter, you should
systems are adopted.
be able to:
2. Explain the purpose of a standard cost sheet.
3. Compute and journalize the direct materials
and direct labor variances, and explain how
they are used for control.
4. Compute overhead variances three different
ways, and explain overhead accounting.
Continued
9-2
Objectives
5. Calculate mix and yield variances for direct
materials and direct labor.
9-3
Unit Standard Cost
To determine the unit standard cost for a
particular input, two decisions must be made:
1. How much of the input should be used per unit
of output (quantity decision)?
2. How much should be paid for the quantity of
the input to be used (pricing decision)?
9-4
Sources for Setting Standards
 Historical experience
 Engineering studies
 Input from operating
personnel
9-5
Establishing Standards
 Ideal standards demand
maximum efficiency and can be
achieved only if everything
operates perfectly.
 Currently attainable standards
can be achieved under efficient
operating conditions.
 Kaizen standards reflect a
planned improvement and are a
type of currently attainable
standard.
9-6
Purpose of Standards
To Improve Planning and Control
To Facilitate Product Costing
9-7
Cost Assignment Approaches
Manufacturing Costs
Direct
Materials
Direct
Labor
Overhead
Actual costing system
Actual
Actual
Actual
Normal costing system
Actual
Actual
Budgeted
Standard
Standard
Standard costing system Standard
9-8
9-9
Standard Cost Sheet
Deluxe Strawberry Frozen Yogurt
Description
Direct materials:
Yogurt
Strawberries
Milk
Whipped cream
Gelatin
Container
Total direct
materials
Standard
Price
$0.020
0.010
0.015
0.025
0.010
0.030
Standard Standard
Usage
Cost
Subtotal
x
x
x
x
x
x
25 oz.
10 oz.
8 oz.
4 oz.
1 oz.
1
= $0.50
= 0.10
= 0.12
= 0.10
= 0.01
= 0.03
$0.86
Continued
9-10
Description
Standard
Price
Standard
Usage
Standard
Cost
Direct labor:
Machine operators
$8.00 x 0.01 hr. = $0.08
Total direct labor
Overhead:
Variable overhead
6.00 x 0.01 hr. = $0.06
Fixed overhead
20.00 x 0.01 hr. = 0.20
Total overhead
Total standard unit cost
Subtotal
$0.08
0.26
$1.20
9-11
Standard Usage Allowed
Standard Quantity (SQ) of Materials Allowed for 20,000
quarts:
SQ = Unit quantity standard x Actual output
= 25 x 20,000
= 500,000 ounces
Standard Hours (SH) of Labor Allowed for 20,000 quarts:
SH = Unit quantity standard x Actual output
= 0.01 x 20,000
= 200 direct labor hours
9-12
Price and Usage Variances
Actual production: 30,000 quarts
Actual yogurt usage: 780,000 ounces
Actual price per ounce of yogurt: $0.025
Actual direct labor hours: 325 hours
Actual wage rate: $8.20 per hour
9-13
Price and Usage Variances
AP x AQ (Actual
Quantity at Actual
Price) (1)
SP x AQ (Actual
Quantity at
Standard Price) (2)
Price Variance
(1) –(2)
SP x SQ (Standard
Quantity at
Standard Price)
(3)
Usage Variance
(2) – (3)
Total Variance
(1) – (3)
9-14
Material Price Variance
MPV = (AP – SP)AQ
Actual
Actual price
Standard
pricequantity
per unit per unitof direct
material used
9-15
Material Price Variance
MPV = (AP – SP)AQ
= ($0.025 – $0.020)780,000
= $0.005 x 780,000
= $3,900 U
9-16
Direct Materials Usage Variance
MUV = (AQ – SQ)SP
Standard
Actual quantity
Standard price
quantity of
of materials
per unit
materials
used
allowed for the
actual output
9-17
Direct Materials Usage Variance
MUV = (AQ – SQ)SP
= (780,000 – 750,000)$0.02
= 30,000 x $0.02
= $600 U
9-18
The actual price is $0.025 per ounce while the
standard price is $0.020 and 780,000
ounces are purchased. Helado Company
would make the following entry:
Materials
15 600 00
The receiving report and the invoice are
Direct Materials Price Variance
900 00
used to record the receipt of 3the
Accounts Payable
merchandise
and to control the payment.
19 500 00
Material Price Variance
9-19
The entry to record Helado’s usage of
780,000 ounces of yogurt during the
first week of May would be:
Work in Process
15 000 00
The receiving report and the invoice are
Direct Materials Usage Variance
600 00
used to record the receipt of the
Materials
merchandise
and to control the payment.
15 600 00
Material Usage Variance
9-20
Rate and Efficiency Variances
AH x AR (Actual
Hours at Actual
Rate) (1)
AH x SR (Actual
Hours at Standard
Rate) (2)
SH x SR
(Standard Hours at
Standard Rate) (3)
Efficiency
Variance
(2) – (3)
Rate Variance
(1) –(2)
Total Variance
(1) – (3)
9-21
Labor Rate Variances
LRV = (AR – SR)AH
Actual direct
Standard
Actual hourly
labor hours
hourly
wage
wage rate
rate used
9-22
Labor Rate Variances
LRV = (AR – SR)AH
= ($8.20 – $8.00)325
= $0.20 x 325
= $65 U
9-23
Labor Efficiency Variances
LEV = (AH – SH)SR
Actual direct
Standard
Standard hourly
direct wage
labor hours
usedlabor hours that
rate
should have
been used
9-24
Labor Efficiency Variances
LEV = (AH – SH)SR
= (325 – 300)$8.00
= 25 x $8.00
= $200 U
9-25
During the period Helado Company uses 325
actual direct labor hours, while the standard
hours for the units produced is 300 hours.
The actual rate incurred is $8.20 per hour
while the standard rate is $8.00 per hour.
Work in Process
2 400 00
The receiving report and the invoice are
Direct Labor Rate Variance
used to record the receipt of the65 00
Directmerchandise
Labor Efficiency
Variance
200 00
and
to control the payment.
Wages Payable
2 665 00
Labor Variances
9-26
Disposition of Direct Materials
and Direct Labor Variances
Cost of Goods Sold
4 765 00
The receiving report and the invoice are
Direct Materials Price Variance
used to record the receipt of the
Direct
Materials Usage
Variance
merchandise
and to
control the payment.
Direct Labor Rate Variance
Direct Labor Efficiency Variance
3 900 00
600 00
65 00
200 00
If immaterial in amount
9-27
Disposition of Direct Materials
and Direct Labor Variances
Work in Process
Finished Goods
Cost of Goods Sold
Total
Prime Costs
$
0
Percentage of Total
0%
3,480
20
13,920
80
$17,400
100 %
If material in amount
9-28
Disposition of Direct Materials
and Direct Labor Variances
Finished Goods
953 00
The receiving report and the invoice are
Cost of Goods Sold
3 812 00
used to record the receipt of the
Direct Materials Price Variance
merchandise and to control the payment.
Direct Materials Usage Variance
Direct Labor Rate Variance
Direct Labor Efficiency Variance
3 900 00
600 00
65 00
200 00
If material in amount
9-29
Variable Overhead Variances
Variable overhead rate (standard)
Actual variable overhead costs
Actual hours worked
Quarts of deluxe frozen strawberry
yogurt produced
Hours allowed for production
Applied variable overhead
$6.00/DLH
$7,540
1,300
120,000
1,200
$7,200
9-30
Variable Overhead Variances
Actual Variable
Overhead (1)
Variable
Overhead Rate x
Actual Hours (2)
Spending
Variance
(1) –(2)
Variable
Overhead Rate x
Standard Hours
(3)
Efficiency
Variance
(2) – (3)
Total Variance
(1) – (3)
9-31
Variable Overhead
Spending Variances
VOSV = (AVOR x AH) – (SVOR x AH)
= (AVOR – SVOR)AH
= ($5.80 – $6.00)1,300
= $260 F
9-32
Variable Overhead
Efficiency Variances
VOSV = (AH – SH)SVOR
= (1,300 – 1,200)$6.00
= $600 U
9-33
Helado Company, Inc.
Flexible Budget Performance Report
For the Month Ended May 31, 2004
Cost
Formula
Actual
Costs
Budget
Spending
Variance
Natural gas
$3.80
$4,400
$4,940
$540 F
Electricity
2.00
2,840
2,600
240 U
Water
0.20
300
260
40 U
$6.00
$7,540
$7,800
$240 F
Total cost
9-34
Helado Company, Inc.
Performance Report
For the Month Ended May 31, 2004
Budget
for
Budget
Actual for Actual Spending Standard Efficiency
Cost
Formula Costs Hours Variance Hours Variance
Natural gas
$3.80
$4,400
Electricity
2.00
2,840
2,600
Water
0.20
300
260
$6.00
$7,540
Total
$4,940 $540 F
$4,560
$380 U
240 U
2,400
200 U
40 U
240
20 U
$7,800 $260 F
$7,200
$600 U
9-35
Fixed Overhead Variances
Budgeted or Planned Items (May)
Budgeted fixed overhead
$20,000
Expected activity
1,000 direct labor hours
Standard fixed overhead rate
$20
Hours allowed toActual
produce
100,000 quarts of frozen
Results
yogurt (0.01 x 100,000)
Actual production
120,000 quarts
Actual fixed overhead cost
$20,500
Standard hours allowed for actual
production (0.01 x 120,000)
1,200
9-36
Total Fixed Overhead Variances
Applied fixed = Standard fixed overhead rate
overhead
x Standard hours
= $20 x 1,200
= $24,000
Total fixed = $20,500 – $24,000
overhead variance
= $3,500 Overapplied
9-37
Fixed Overhead Variances
Actual Fixed
Overhead
(1)
Budgeted Fixed
Overhead
(2)
Fixed Overhead
Rate x Standard
Hours (3)
Volume
Variance
(2) – (3)
Spending
Variance
(1) – (2)
Total Variance
(1) – (3)
9-38
Fixed Overhead Spending Variance
FOSV = AFOH – BFOH
= $20,500 – $20,000
= $500 U
9-39
Helado Company, Inc.
Performance Report
For the Month Ended May 31, 2004
Fixed
Overhead Items
Depreciation
Salaries
Taxes
Insurance
Total
Actual
Cost
Budgeted
Cost
Variance
$ 5,000
13,400
1,100
1,000
$20,500
$ 5,000 $---13,000 400 U
1,050
50 U
950
50 U
$20,000 $500 U
9-40
Fixed Overhead Volume Variance
FOVV = Budgeted fixed overhead –
Applied fixed overhead
= [Standard fixed overhead rate x
SH(D)] – (Standard fixed overhead
x SH)
= $20(1,000 – 1,200)
= $4,000 F
9-41
To assign overhead to production, the
following entry is made:
Work in Process
31 200 00
The receiving report and the invoice are
Variable Overhead Control
used to record the receipt of the
Fixed
Overhead Control
merchandise
and to control the payment.
7 200 00
24 000 00
To recognize the incurrence of actual
overhead, the following entry is needed:
Variance Overhead Control
7 540 00
The receiving report and the invoice are
Fixed Overhead Control
20 500 00
used to record the receipt of the
Miscellaneous
Accounts
merchandise
and to control the payment. 28
040 00
9-42
MIX AND YIELD VARIANCES:
MATERIAL AND LABOR
Standard Mix Information: Direct Materials
Direct Material
Mix Mix Proportion
Peanuts
Almonds
128 lbs.
32 lbs.
Total
160 lbs.
0.80
0.20
SP
$0.50
1.00
Standard Cost
$64
32
$96
Yield
120 lbs.
Yield ratio: 0.75 (1.20/160)
Standard cost of yield (SP): $0.80 per pound ($96/120
pounds of yield)
9-43
Malcom Nut Company produces a
batch of 1,600 pounds and produces
the following actual results:
Direct
Material
Actual Mix
Percentages
Peanuts
Almonds
Total
1,120 lbs.
480
1,600 lbs.
70 %
30
100 %
Yield
1,300 lbs.
81.3 %
9-44
Standard Mix
SM = Standard mix proportion x Total actual input quantity
SM(peanuts) = 0.80 x 1,600 pounds = 1,280 pounds
SM(almonds) = 0.20 x 1,600 pounds = 320 pounds
9-45
Standard Mix
Mix Variance = 3(AQ – SM)SP
Direct
Material
AQ
SM AQ – SM
Peanuts
1,120 1,280
Almonds
480 320
Mix variance
-160
160
SP
$0.50
1.00
(AQ – SM)SP
$-80
60
$-80 U
9-46
Direct Materials Yield Variance
Standard yield = Yield ratio x Total actual inputs
Yield variance = (Standard yield – Actual yield)SPy
Yield variance = (1,200 – 1,300)$0.80
= $80 F
9-47
Standard Mix Information
Labor Type
Mix Mix Proportion
SP
Standard Cost
Shelling
3 hrs.
0.60
$ 8.00
$24
Mixing
2 hrs.
0.40
15.00
30
Total
5 hrs.
Yield
120 lbs.
$54
Yield ratio: 24 = (120/5), or 2,400%
Standard cost of yield (SPy): $0.45 per pound
pounds of yield)
($54/120
9-48
Standard Mix Information
Malcom processes 1,600 pounds of nuts and produces the
following actual results:
Labor Type
Actual Mix
Mix Percentages*
Shelling
20 hrs.
40%
Mixing
30 hrs.
60%
Total
50 hrs.
100%
Yield
1,300 lbs.
2,600%
*Uses 50 hours as the base.
9-49
Direct Labor Mix Variance
Labor Type AH
SM
AH – SM
SP
(AH – SM)/SP
Shelling
20
30
-10
$ 8.00
$-80
Mixing
30
20
10
15.00
150
Direct Labor mix variance
$-70 U
9-50
Direct Labor Yield Variance
Using the standard mix information and the actual results,
the yield variance is computed as follows:
Yield variance = (Standard yield – Actual yield)SPy
= [(24 x 50) – 1,300]$0.45
= (1,200 – 1,300)$0.45
= $45 F
The yield variance is favorable because the actual yield is
greater than the standard yield.
9-51
End of
Chapter
9-52
9-53