Kế toán, kiểm toán - Chapter 11: Standard costs and variance analysis

Slide 11-2CHAPTER 11 Standard Costs and Variance AnalysisSlide 11-3Standard Costs and BudgetsStandard costCost that management believes should be incurred to produce a product or service under anticipated conditionsStandard costs can be used by manufacturing and service companiesA tool manufacturer may set a standard cost for producing a hammerA bank may set a standard cost for processing a checkLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-4Standard Costs and BudgetsThe term standard cost often refers to the cost of a single unitThe term budgeted cost often refers to the cost, at standard, of the total number of budgeted unitsThe cost information contained in budgets must be consistent with standard costsSlide 11-5Standard Costs and BudgetsIf the materials budget indicates purchases of 5,000 pounds, standard cost is $25,000 (5,000 pounds * $5 standard cost per pound)If the labor budget is prepared for 1,000 units produced, 3,000 labor hours are needed at a standard cost of $30,000 (3,000 hours * $10)Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-6StarbucksLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-7Development of Standard CostsStandard costs for material, labor and overhead are developed in a variety of waysStandard quantity and price for material may be specified:In engineering plans that provide a list of materialIn recipes or formulasBy time and motion studiesIn price lists provided by suppliersLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-8Development of Standard CostsStandard quantity and rate for direct labor may be specified:By time and motion studiesThrough analysis of past dataBy management expectations of rates to be paidIn contracts that set labor ratesStandard costs for overhead involves procedures similar to those used to develop predetermined overhead ratesLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-9Ideal versus Attainable StandardsIn developing standard costs, some managers emphasize ideal standards while others use attainable standardsIdeal standards assumes that no obstacles to the production process will be encounteredManagers who support ideal standards believe they motivate employees to strive for the best possible control over production costsLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-10Ideal versus Attainable StandardsAttainable standards are standard costs that take into account the possibility that a variety of circumstances may lead to costs that are greater than idealIf equipment breakdowns and defects are a fact of life, it makes sense to plan for their associated costsMost managers support the use of attainable standardsLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-11 What is the primary benefit of a standard costing system?It records costs at what should have been incurredIt allows a comparison of differences between actual and standard costsIt is easy to implementIt is inexpensive and easy to useAnswer: bIt allows a comparison of differences between actual and standard costsTest Your Knowledge 1Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-12Standard CostingLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-13A General Approach to Variance AnalysisCompanies that use standard costing can analyze the difference between a standard and an actual costCalled a standard cost varianceDetermines whether operations are being performed efficientlyThe analysis is called variance analysisIt generally involves breaking down the differences between standard and actual cost into two componentsLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-14A General Approach to Variance AnalysisDirect material variancesMaterial price varianceMaterial quantity varianceDirect labor variancesLabor rate varianceLabor efficiency varianceManufacturing overhead variancesOverhead volume varianceControllable overhead varianceLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-15Material VariancesMaterial price varianceDifference between the actual price per unit of material (AP) and the standard price per unit of material (SP) times the actual quantity of material purchased (AQ)Material quantity varianceDifference between the actual quantity of material used (AQ) and the standard quantity of material allowed for the number of units produced (SQ) times the standard price of material (SP)Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-16Material VariancesStandard for 1 unit: 400 lbs @ $10 per lbMaterials purchased: 200,000 lbs @ $9.90 per lbMaterials used: 181,000 lbs to produce 450 unitsLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-17You Get What You Measure!Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-18Data for chips used in the production of computersStandard: 3 chips per computer @ $6.50 per chipQuantity purchased: 200 chips for total of $1,350 Quantity used: 123 chips for production of 40 unitsCalculate the material price varianceTest Your Knowledge 2Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-19Test Your Knowledge 3Data for chips used in the production of computersStandard: 3 chips per computer @ $6.50 per chipQuantity purchased: 200 chips for $1,350 totalQuantity used: 123 chips for production of 40 unitsCalculate the material quantity variance:Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-20Direct Labor VariancesLabor Rate VarianceDifference between actual wage rate (AR) and standard wage rate (SR) times the actual number of labor hours worked (AH)Labor Efficiency VarianceDifference between actual number of hours worked (AH) and the standard labor hours allowed for the number of units produced (SH) times the standard labor wage rate (SR) Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-21Direct Labor VariancesStandard for 1 unit: 4 hours @ $15 per hourActual labor: 1,700 hours @ $15.50 per hour to produce 450 unitsLearning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-22Test Your Knowledge 4Data for labor used in the production of sneakers Standard: .25 hours per sneaker at $12.00 per hour Actual quantity produced: 24,500 sneakers Quantity used: 6,000 hours, total cost $69,000Calculate the labor rate variance:Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Slide 11-23Test Your Knowledge 5Data for labor used in the production of sneakers Standard: .25 hours per sneaker at $12.00 per hour Actual quantity produced: 24,500 sneakers Quantity used: 6,000 hours, total cost $69,000Calculate the labor efficiency variance:Learning objective 1: Explain how standard costs are developed, and calculate and interpret variances for direct material and direct labor.Learning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-24Overhead VariancesControllable overhead varianceDifference between the actual amount of overhead and amount of overhead that would be included in a flexible budget for the actual level of productionOverhead volume varianceDifference between the amount of overhead included in the flexible budget and the amount of overhead applied to production using the standard overhead rateSlide 11-25Overhead VariancesStandard for 1 unit: $50 overhead appliedActual overhead: $23,000 to produce 450 unitsFlexible budget overhead: $15,000 fixed + $20 per unit producedLearning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-26Interpreting Overhead Volume VarianceVolume variances do not signal that overhead costs are in or out of controlA volume variance signals that the quantity of production was greater or less than anticipatedThe usefulness of the volume variance is limitedIt signals only that more or fewer units have been produced than planned when the standard overhead rate was setLearning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-27Standard Cost Variance FormulasLearning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-28Standard Cost Variance FormulasLearning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-29A favorable labor efficiency variance means:Labor rates were higher than called for by standardsInexperienced labor was used, causing the rate to be lower than standardMore labor was used than called for by standardsLess labor was used than called for by standardsAnswer: dLess labor was used than called for by standardsTest Your Knowledge 6Learning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-30What does an unfavorable overhead volume variance mean?Overhead costs are out of controlOverhead costs are in controlProduction was greater than anticipatedProduction was less than anticipatedAnswer: d Production was less than anticipatedTest Your Knowledge 7Learning objective 2: Calculate and interpret variances for manufacturing overhead, and calculate the financial impact of operating at more or less than planned capacity.Slide 11-31Investigation of Standard Cost VariancesStandard cost variances do not provide definitive evidence that costs are out of control and managers are not performing effectivelyThey should be viewed as an indicator of potential problem areasThe only way to determine whether costs are being effectively controlled is to investigate the facts behind the variancesLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-32Standard Cost VariancesLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Learning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-33Management by ExceptionInvestigation of standard cost variances is a costly activityA management by exception approach is to investigate only those variances that are considered exceptionalMust determine criteria to measure what is considered exceptionalAbsolute dollar value of the varianceThe variance as a percent of actual or standard costSlide 11-34“Favorable” Variances May Be UnfavorableThe fact that a variance is favorable does not mean that is should not be investigatedA favorable variance may be indicative of poor management decisionsA poor decision regarding the quality of raw materials might result in an unfavorable variance in material quantityLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-35Can Process Improvements Lead to “Unfavorable” Variances?A firm may have an unfavorable variance because it engaged in process improvementsThey can lead to greater efficiency which results in actual labor hours being less than standard labor hoursFirms should stimulate greater demand to take advantage of the greater production capabilitiesLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-36Evaluation in Terms of Variances Can Lead to Excess ProductionWhen bottlenecks exist, the department in front of the bottleneck should not produce more than the bottlenecked department can handleIf it does it will create excess work-in-process inventory and result in a negative impact on shareholder valueLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-37Responsibility Accounting and VariancesThe central idea of responsibility accounting is that managers should be held responsible for only the costs they can controlAdditionally, managers and workers should only be held responsible for variances they can controlLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-38QualityLearning objective 3: Discuss how the management-by-exception approach is applied to the investigation of standard cost variances. Also, explain why a favorable variance may be unfavorable, how process improvements may lead to unfavorable variances, and why evaluation in terms of variances may lead to overproduction.Slide 11-39Copyright © 2016 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.