Standard Costs

Pertemuan 7

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Standard Costs

Standard Costs are

Predetermined.

Used for planning labor, materialand overhead requirements.

Benchmarks formeasuring performance.

Used to simplify theaccounting system.

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Standard Costs

DirectMaterial

Managers focus on quantities and coststhat exceed standards, a practice known as

management by exception.

Type of Product Cost

Am

ou

nt

DirectLabor

ManufacturingOverhead

Standard

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Accountants, engineers, personnel administrators, and production managers combine efforts to set standards

based on experience and expectations.

Setting Standard Costs

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Setting Standard Costs

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 mostemployees.”

Engineer&Managerial Accountant: “Should we use practical standardsor ideal standards?”

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Setting Direct Material Standards

PriceStandards

Final, deliveredcost of materials,net of discounts.

QuantityStandards

Use product design specifications.

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Setting Direct Labor Standards

RateStandards

Use wage surveys and

labor contracts.

TimeStandards

Use time and motion studies for

each labor operation.

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Setting Variable Overhead Standards

RateStandards

The rate is the variable portion of the

predetermined overhead rate.

ActivityStandards

The activity is the base used to calculate

the predetermined overhead.

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Standard Cost Card – Variable Production Cost

A standard cost card for one unit of product might look like this:

A A x BStandard Standard StandardQuantity Price Cost

Inputs or Hours or Rate per Unit

Direct materials 3.0 lbs. 4.00$ per lb. 12.00$ Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost 54.50$

B

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Are standards the same as budgets?

A budget is set for total costs.

Standards vs. Budgets

A standard is a per unit cost.

Standards are often used when

preparing budgets.

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Standard Cost VariancesC

ost

Standard

This variance is unfavorablebecause the actual cost

exceeds the standard cost.

A standard cost variance is the amount by whichan actual cost differs from the standard cost.

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Standard Cost Variances

I see that thereis an unfavorable

variance.

But why arevariances

important to me?

First, they point to causes ofproblems and directions

for improvement.

Second, they trigger investigations in departments

having responsibility for incurring the costs.

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Variance Analysis Cycle

Prepare standard cost performance

report

Analyze variances

Begin

Identifyquestions

Receive explanations

Takecorrective

actions

Conduct next period’s

operations

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Standard Cost Variances

Standard Cost Variances

Price Variance

The difference betweenthe actual price and the

standard price

Quantity Variance

The difference betweenthe actual quantity andthe standard quantity

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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 resources acquired.

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Price Variance Quantity Variance

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

A General Model for Variance Analysis

Standard quantity is the quantity allowed for the actual good output.

Standard input per unit of outputtimes amount of good output.

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A General Model for Variance Analysis

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

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

Price Variance Quantity Variance

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

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Standard Costs

Let’s use the general model to calculate standard cost

variances for direct material.

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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.

Material VariancesExample

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210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg.

= $1,029 = $1,050 = $1,000

Price variance$21 favorable

Quantity variance$50 unfavorable

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

Material VariancesSummary

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210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg.

= $1,029 = $1,050 = $1,000

Price variance$21 favorable

Quantity variance$50 unfavorable

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

$1,029 210 kgs = $4.90 per

kg

Material VariancesSummary

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210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg.

= $1,029 = $1,050 = $1,000

Price variance$21 favorable

Quantity variance$50 unfavorable

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

0.1 kg per parka 2,000 parkas = 200 kgs

Material VariancesSummary

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Note: Using the formulas

Materials price varianceMPV = AQ (AP - SP)

= 210 kgs ($4.90/kg - $5.00/kg)

= 210 kgs (-$0.10/kg)

= $21 F

Materials quantity varianceMQV = 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

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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. $50 U

c. $100 F

d. $100 U

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. $50 U

c. $100 F

d. $100 U

Quick Check

MQV = SP (AQ - SQ) = $5.00/kg (190 kgs-(0.1 kg/parka 2,000 parkas)) = $5.00/kg (190 kgs - 200 kgs) = $5.00/kg (-10 kgs) = $50 F

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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.

Material VariancesExample

Zippy

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What is the actual price per poundpaid for the material?

a. $4.00 per pound.

b. $4.10 per pound.

c. $3.90 per pound.

d. $6.63 per pound.

What is the actual price per poundpaid for the material?

a. $4.00 per pound.

b. $4.10 per pound.

c. $3.90 per pound.

d. $6.63 per pound.

Quick Check Zippy

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What is the actual price per poundpaid for the material?

a. $4.00 per pound.

b. $4.10 per pound.

c. $3.90 per pound.

d. $6.63 per pound.

What is the actual price per poundpaid for the material?

a. $4.00 per pound.

b. $4.10 per pound.

c. $3.90 per pound.

d. $6.63 per pound.

AP = $6,630 ÷ 1,700 lbs.AP = $3.90 per lb.

Quick Check Zippy

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Hanson’s material price variance (MPV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable.

Hanson’s material price variance (MPV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable.

Quick Check Zippy

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Hanson’s material price variance (MPV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable.

Hanson’s material price variance (MPV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 Favorable

Quick Check Zippy

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The standard quantity of material thatshould have been used to produce1,000 Zippies is:

a. 1,700 pounds.

b. 1,500 pounds.

c. 2,550 pounds.

d. 2,000 pounds.

The standard quantity of material thatshould have been used to produce1,000 Zippies is:

a. 1,700 pounds.

b. 1,500 pounds.

c. 2,550 pounds.

d. 2,000 pounds.

Quick Check Zippy

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The standard quantity of material thatshould have been used to produce1,000 Zippies is:

a. 1,700 pounds.

b. 1,500 pounds.

c. 2,550 pounds.

d. 2,000 pounds.

The standard quantity of material thatshould have been used to produce1,000 Zippies is:

a. 1,700 pounds.

b. 1,500 pounds.

c. 2,550 pounds.

d. 2,000 pounds. SQ = 1,000 units × 1.5 lbs per unit SQ = 1,500 lbs

Quick Check Zippy

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Quick Check

Hanson’s material quantity variance (MQV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable.

Hanson’s material quantity variance (MQV)for the week was:

a. $170 unfavorable.

b. $170 favorable.

c. $800 unfavorable.

d. $800 favorable.

Zippy

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1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb.

= $6,630 = $ 6,800 = $6,000

Price variance$170 favorable

Quantity variance$800 unfavorable

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

Material VariancesSummary

Zippy

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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.

Material VariancesContinued

Zippy

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Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb.

= $10,920 = $11,200

Price variance$280 favorable

Price variance increases because quantity

purchased increases.

ZippyMaterial Variances

Continued

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Actual Quantity Used Standard Quantity × × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb.

= $6,800 = $6,000

Quantity variance$800 unfavorable

Quantity variance is unchanged because actual and standard

quantities are unchanged.

Material VariancesContinued

Zippy

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Note

Materials variances: Material price variance

MPV = AQ (AP - SP) Material quantity variance

MQV = SP (AQ - SQ)

Labor variances: Labor rate variance

LRV = AH (AR - SR) Labor efficiency variance

LEV = SR (AH - SH)

Actual hours

Actual rate

Standard rate

Standard hours allowed for the actual good output

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Hanson Inc. has the following direct labor standard to manufacture one Zippy:

1.5 standard hours per Zippy at $12.00 perdirect labor hour

Last week 1,550 direct labor hours were worked at a total labor cost of $18,910

to make 1,000 Zippies.

Labor Variances Example Zippy

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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.

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.

Quick Check Zippy

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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.

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.

Quick Check

AR = $18,910 ÷ 1,550 hours AR = $12.20 per hour

Zippy

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Hanson’s labor rate variance (LRV) for the week was:

a. $310 unfavorable.

b. $310 favorable.

c. $300 unfavorable.

d. $300 favorable.

Hanson’s labor rate variance (LRV) for the week was:

a. $310 unfavorable.

b. $310 favorable.

c. $300 unfavorable.

d. $300 favorable.

Quick Check Zippy

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Hanson’s labor rate variance (LRV) for the week was:

a. $310 unfavorable.

b. $310 favorable.

c. $300 unfavorable.

d. $300 favorable.

Hanson’s labor rate variance (LRV) for the week was:

a. $310 unfavorable.

b. $310 favorable.

c. $300 unfavorable.

d. $300 favorable.

Quick Check

LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) LRV = $310 unfavorable

Zippy

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The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.

The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.

Quick Check Zippy

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The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.

The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.

Quick Check

SH = 1,000 units × 1.5 hours per unit SH = 1,500 hours

Zippy

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Hanson’s labor efficiency variance (LEV)for the week was:

a. $590 unfavorable.

b. $590 favorable.

c. $600 unfavorable.

d. $600 favorable.

Hanson’s labor efficiency variance (LEV)for the week was:

a. $590 unfavorable.

b. $590 favorable.

c. $600 unfavorable.

d. $600 favorable.

Quick Check Zippy

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Hanson’s labor efficiency variance (LEV)for the week was:

a. $590 unfavorable.

b. $590 favorable.

c. $600 unfavorable.

d. $600 favorable.

Hanson’s labor efficiency variance (LEV)for the week was:

a. $590 unfavorable.

b. $590 favorable.

c. $600 unfavorable.

d. $600 favorable.

Quick Check

LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable

Zippy

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Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate

Labor VariancesSummary

Rate variance$310 unfavorable

Efficiency variance$600 unfavorable

1,550 hours 1,550 hours 1,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour

= $18,910 = $18,600 = $18,000

Zippy

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Labor Efficiency Variance –A Closer Look

UnfavorableEfficiencyVariance

Poorsupervisionof workers

Poorlymaintainedequipment

Poorlytrainedworkers

Poorquality

materials

Insufficientdemand

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Note

Labor variances: Labor rate variance

LRV = AH (AR - SR) Labor efficiency variance

LEV = SR (AH - SH)

Variable overhead variances: Variable overhead spending variance

VOSV = AH (AR - SR) Variable overhead efficiency variance

VOEV = SR (AH Quick Check

Actual hours of the allocation base

Actual variable overhead rate

Standard variable overhead rate

Standard hours allowed for the actual good output

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Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was:

a. $465 unfavorable.

b. $400 favorable.

c. $335 unfavorable.

d. $300 favorable.

Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was:

a. $465 unfavorable.

b. $400 favorable.

c. $335 unfavorable.

d. $300 favorable.

Quick Check Zippy

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Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was:

a. $465 unfavorable.

b. $400 favorable.

c. $335 unfavorable.

d. $300 favorable.

Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was:

a. $465 unfavorable.

b. $400 favorable.

c. $335 unfavorable.

d. $300 favorable.

Quick Check

SV = AH(AR - SR) SV = 1,550 hrs($3.30 - $3.00) SV = $465 unfavorable

Zippy

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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.

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.

Quick Check Zippy

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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.

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.

Quick Check

EV = SR(AH - SH) EV = $3.00(1,550 hrs - 1,500 hrs) EV = $150 unfavorable

1,000 units × 1.5 hrs per unit

Zippy

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Spending variance$465 unfavorable

Efficiency variance$150 unfavorable

1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour

= $5,115 = $4,650 = $4,500

Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate

Variable ManufacturingOverhead Variances

Zippy

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Advantages of Standard Costs

Management byexception

Improved cost control and performance

evaluation

Better Informationfor planning anddecision making

Possible reductionsin production costs

Advantages

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PotentialProblems

Emphasis onnegative may

impact morale.

Emphasizing standardsmay exclude other

important objectives.

Favorable variancesmay be

misinterpreted.

Continuous improvementmay be moreimportant than

meeting standards.

Standard costreports may

not be timely.

Incentives to buildinventories.

Disadvantages ofStandard Costs

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Akhir Pertemuan 7: Terima kasih