Chapter 10 standard Costs and Variances

quantity variance

is the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input.

price variance

is the difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased.

what are some reasons for unfavorable labor efficiency?

poorly trained workers unmotivated workers poor quiality materials more labor time poor supervision faulty equipment

what are some factors that influence materials purchase prices ?

quantity and quality of materials, the number of purchase order placed with suppliers, how the purchased materials are delivered, of materials are purchased on rush order

standard direct materials cost =

quantity standard x price standard

standard quantity allowed aka standard hours allowed

refers to the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period

quantity standards

specify how much of an input should be used to make a product or provide a service

price standards

specify how much should be paid for each unit of the input

standard variable manufacturing overhead cost per unit =

standard hours per unit for variable OH x standard rate per hour

standard direct labor cost =

standard labor hours per unit x standard rate per hours

standard quantity per unit

The amount of an input that should be required to complete a single unit of product, including allowances for normal waste, spoilage, rejects, and other normal inefficiencies.

if the customer orders are insufficebt to keep workers busy what 2 options does the work center manager have?

1. accept unfavorable labor efficency 2. build inventory

What are the 4 advantages of standard costs?

1. helps managers focus on other issues if cost conform to standards ; if they are not teh manager can see what problems may exist; helps managers focus on important issues 2. standards that are viewed reasonable by employees can promote economy and efficiency and provide benchmarks that individuals can use to judge their own preformance 3. standard costs can greatly simplify bookkeeping 4. standard costs fit naturally in an integrated system of "responsibility accounting" standards establish what costs should be, who should be responsible for them and whether actual costs are under control

what are the problems with standard costs if they are improperly used?

1. information can be outdated if not reported frequently 2. can be used to only assign blame and punishment and variances can be used to cover up unfavorable variances or take acyions to make sure the variances are favorable 3. can blame labor workers if labor works faster output will go up 4. sometimes favorable variances can be a bad thing like using less meet in patty causes unhappy customers 5. too much emphasis can be placed on meeting standards and overshadow things like customer satisfaction 6. some companies just focus on meeting standards nut this is not sufficient enough

after determining the standard cost for direct materials, labor and OH you should compute the...?

actual costs

standard quatity allowed =

actual output x standard quantity per unit

why are standards separated into 2 categories-price and quantity?

because price variances and quantity variances have different causes and also different managers are responsible for buying and using inputs

variances are computed by...

comparing actual costs to standard costs

standard hours per unit

defines the amount of direct labor hours that should be used to produce one unit of finished goods

standard rate per hour

defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits

standard price per unit

defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials

standard rate per unit

equals the variable portion of the predetermined overhead rate

standard

is a benchmark for measuring performance

A quantity variance is called a what in the case of direct labor?

labor efficiency variance

a price variance is called a what in the case of direct labor?

labor rate variance

production manager should make sure that...

material usage is kept in line with standards

a price variance is called a what in the case of direct materials?

materials price variance

A quantity variance is called a what in the case of direct materials?

materials quantity variance

standard hours per unit for variable OH

measures the amount of the allocation base from a company's predetermines OH rate that is required to produce one unit of finished goods

materials price variance

measures the difference between a direct materials actual price per unit and its standard price per unit multiplied by the actual quantity purchased

labor rate variance

measures the difference between the actual hourly rate and the standard hourly rate multiplied by the actual number of hours worked during the period

labor efficiency variance

measures the difference between the actual labor hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate

variable OH effciency variance

measures the difference between the actual level of activity and the standard activitu allowed for the actual output, multiplied by the variable part of the PDOHR

materials quantity variance

measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output multiplied by the standard price per unit of materials

variable OH rate variance

measures the difference between the actual variable OH cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period

A quantity variance is called a what in the case of variable manufacturing OH?

variable OH efficiency variance

a price variance is called a what in the case of variable manufacturing OH ?

variable OH rate

When do managers investigate prices or inputs

when the acquisition price or quanity departs significantly from the standard