PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING II. Standard Costs

Transcription

1 Overview PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING II Standard Costs 1. Importance o standards 2. Variances rom standards 3. Standards in the acconts 4. Variances on the inancial statements Advantages o Standard Costs (rom textbook page 1149) 1. Helps plan 2. become more cost conscios 3. Helps set selling prices 4. Management more able to control 5. Management deals with 6. Simpliy costing and redce clerical costs Variances rom Standards Standard Costs page 1 o 4

2 Example o Standard Cost Variances Standard costs and actal costs or direct materials, direct labor, and manactring overhead incrred or Titan Company in the manactre o 5,000 nits o prodct dring Febrary were as ollows: Standard Costs Actal Costs Direct Materials 7,000 ponds at $12 7,200 ponds at $11.50 Direct Labor 2,000 hors at $15 1,850 hors at $15.50 Mg Overhead Rates per direct labor, based on 100% o capacity o 2,500 labor hors: Variable costs, $13.20 $28,000 variable cost Fixed cost, $8.00 $20,000 ixed costs Instrctions: Determine (a) the total direct materials cost variance, the price variance, and the qantity variance; (b) the total direct labor cost variance, the price (rate) variance, and the qantity (time) variance; and (c) the total manactring overhead cost variance, the controllable variance, and the volme variance. Total Materials Variance DIRECT MATERIALS COST VARIANCE Materials Price Variance Materials Qantity Variance Standard Costs page 2 o 4

3 DIRECT LABOR COST VARIANCE Total Labor Variance Labor Price (Rate) Variance Labor Qantity (Time) Variance Total Overhead Variance MANUFACTURING OVERHEAD COST VARIANCE (How Costs Behave) In Total Per Unit Variable Costs Fixed Costs Standard Costs page 3 o 4

4 Overhead Controllable Variance Overhead Volme Variance Standard Costs in the Acconts Yo are strongly rged to learn more abot recording standard costs in the acconts by completing the lesson available on the class web page ( It is a W I P contination o the exercise above. The next sheet in the Note-Taking Gide shold assist yo in ollowing along. It wold be best to complete it beore yo do yor homework assignment on this topic. Standard Costs page 4 o 4

5 Principles o Financial and Managerial Acconting II Standard Costs Recording Variances in the Acconts Introdction The lectre presentation explained the importance o sing standard costs in manactring operations. The calclation o variances rom standards and reporting these variances to management provides sel inormation or decision making prposes. Jornal entries are needed to accmlate and report actal and standard costs in the acconting system. A presentation is available on the class web site ( which tells the rest o the story by illstrating the necessary entries. Things Yo Will Need Since this presentation is a contination o the exercise sed in lectre, yo will need the data rom the exercise rom the note taking gide. Having the notes yo took in lectre o the calclations o the variances wold also be helpl and necessary. This handot shold help yo take notes as yo read throgh the inormation presented. However, remember the main objective is not to ill in all the blanks, bt rather to nderstand the material being presented. When yo see the calclator in the presentation, be sre to take the time to reer to the calclations yo made previosly and mentally connect them to the entries being made. Standard Costs: Recording Variances in the Acconts page 1 o 3

6 Materials Price Variance Standard costs are introdced into the acconting system when goods are acqired. The actal qantity acqired is recorded at the standard price. The dierence between the price paid and the price that shold have been paid is the Materials Price Variance. Materials Qantity Variance Actal direct materials sed are credited to while is debited with the standard amont which shold have been sed. The dierence between the standard qantity that shold have been sed and the actal qantity sed is the Materials Qantity Variance. Copyright 2002 by M. Ray Gregg. All rights reserved. 8 Copyright 2002 by M. Ray Gregg. All rights reserved. 11 Labor Price Variance Factory Labor is debited or the actal hors worked at the standard price established. Wages Payable is credited with actal hors worked at the actal rate o pay. The dierence between the actal price paid and the standard rate which shold have been paid is the Labor Price Variance. Copyright 2002 by M. Ray Gregg. All rights reserved. 14 Labor Qantity Variance Standard hors are sed to assign Factory Labor costs to prodction yet Factory Labor is credited or actal hors employees worked. LQV The Labor Qantity Variance is the dierence between the actal hors worked and the standard hors which shold have been worked. Copyright 2002 by M. Ray Gregg. All rights reserved. 17 Overhead Variances LQV O C V O V V Once calclated, the overhead controllable and volme variances are relected in the acconts. actal Copyright 2002 by M. Ray Gregg. All rights reserved. 23 Standards in the Acconts LQV O C V O V V Standard amonts contine to be sed to record the low o costs throgh the remaining acconts. actal Copyright 2002 by M. Ray Gregg. All rights reserved. 28 2

7 Jornal Date Accont P.R. Debit Credit 1 Raw Materials 2 3 Acconts Payable 4 5 Work in Process 6 7 Raw Materials Factory Labor 11 Wages Payable Work in Process Factory Labor Manactring Overhead 18 Acconts Payable (etc.) Work in Process 21 Manactring Overhead Manactring Overhead Finished Goods 28 Work in Process Acconts Receivable retail 31 Sales retail Cost o Goods Sold 34 Finished Goods Standard Costs: Recording Variances in the Acconts page 3 o 3