Standard Costing, Variance Analysis and Flexible Budgets
Chapters 9 & 10
Standard Costing, Variance Analysis and Flexible Budgets
This is a copyright presentation of Darlene B. Serrato and is presented exclusively for the use and benefit of students enrolled in Accounting 2303. Any other use is prohibited. All rights reserved. This presentation may not be copied, reproduced or transferred in or by any media without the express written permission of the author.
STANDARD – is the budgeted cost for one unit of product.
The beginning point in standard setting is a rigorous look at the past. Final responsibility for standard setting should fall on the shoulders of the person who will be working under the standard being set and his or her immediate supervisor.
Ideal Standards do not allow for imperfections or inefficiencies of any type. Therefore, ideal standards are rarely, if ever, attained.
Practical Standards allow for elements of normal inefficiency, machine breakdown time, etc., and can be attained by employees working at a reasonable, though highly efficiently, pace.
For each of the four product cost factors, (Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead) there are two standards developed. These two standards are Standard Quantity (or Usage) and Standard Price or Rate. Multiplying Standard Usage times Standard Price or Rate will give you Standard Costs.
A quantity (or usage) standard says how much of a cost element should go into the manufacture of a unit of product or into the completion of a task. The quantity might be measured either in terms of units of direct materials or hours of direct labor time.
A price standard says what the cost of this quantity (or usage) of materials or this amount of direct labor time should be.
A VARIANCE is the difference between what was planned and what was actually accomplished. You can calculate two detailed variances for each product cost as well as a total variance.
To calculate the variances for each of the
Standard Costing, Variance Analysis and Flexible Budgets
This is a copyright presentation of Darlene B. Serrato and is presented exclusively for the use and benefit of students enrolled in Accounting 2303. Any other use is prohibited. All rights reserved. This presentation may not be copied, reproduced or transferred in or by any media without the express written permission of the author.
STANDARD – is the budgeted cost for one unit of product.
The beginning point in standard setting is a rigorous look at the past. Final responsibility for standard setting should fall on the shoulders of the person who will be working under the standard being set and his or her immediate supervisor.
Ideal Standards do not allow for imperfections or inefficiencies of any type. Therefore, ideal standards are rarely, if ever, attained.
Practical Standards allow for elements of normal inefficiency, machine breakdown time, etc., and can be attained by employees working at a reasonable, though highly efficiently, pace.
For each of the four product cost factors, (Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead) there are two standards developed. These two standards are Standard Quantity (or Usage) and Standard Price or Rate. Multiplying Standard Usage times Standard Price or Rate will give you Standard Costs.
A quantity (or usage) standard says how much of a cost element should go into the manufacture of a unit of product or into the completion of a task. The quantity might be measured either in terms of units of direct materials or hours of direct labor time.
A price standard says what the cost of this quantity (or usage) of materials or this amount of direct labor time should be.
A VARIANCE is the difference between what was planned and what was actually accomplished. You can calculate two detailed variances for each product cost as well as a total variance.
To calculate the variances for each of the