Finance & Managerial Accounting Chapter 10
Chapter 10 Study Notes
Standard: a benchmark or ‘norm’ for measuring performance (what we expect to happen).Using these standards we have Quantity and Price Standards. Quantity Standards: how much of an input should be used in manufacturing a unit of product or in providing a unit of service (similar to a cook recipe: list of items and how much to use)
Cost (Price) Standards: the cost (purchase price) of the units should be (how much we expect to pay for a particular item)
Management by Exception: a system of management in which standards are set for a various operating activities. The actual results are compared to these standards (comparing what happened with what should have happened). The differences are called exceptions and are brought up to the management.
Variance Analysis Cycle: preparation of standard cost performance reports in the accounting department – highlight variances, variances raise questions, significant variances are investigated to discover their root causes, and finally corrective actions are taken. The cycle repeats with new performance reports.
Standard Cost Record:
-created for every unit of product that is manufactured
-detailed listing of the standard amounts of materials, labour, and overhead that should go into a unit of product, multiplied by the standard price that has been set for each cost element.
Standards can be broken down into two areas:
1. Ideal Standards: allow for no machine breakdowns or other work interruptions and require peak efficiency at all times (Not reasonable)
2. Practical Standards: allow for normal machine downtime and other work interruptions that can be attained through reasonable efforts by the average employee (Not easy but attainable)
Standard Price Per Unit: the price that should be paid for a single unit of materials considering the quality, quantity purchased, shipping, receiving etc. Does not consider how the materials are used.
Standard Quantity Per Unit: the
Standard: a benchmark or ‘norm’ for measuring performance (what we expect to happen).Using these standards we have Quantity and Price Standards. Quantity Standards: how much of an input should be used in manufacturing a unit of product or in providing a unit of service (similar to a cook recipe: list of items and how much to use)
Cost (Price) Standards: the cost (purchase price) of the units should be (how much we expect to pay for a particular item)
Management by Exception: a system of management in which standards are set for a various operating activities. The actual results are compared to these standards (comparing what happened with what should have happened). The differences are called exceptions and are brought up to the management.
Variance Analysis Cycle: preparation of standard cost performance reports in the accounting department – highlight variances, variances raise questions, significant variances are investigated to discover their root causes, and finally corrective actions are taken. The cycle repeats with new performance reports.
Standard Cost Record:
-created for every unit of product that is manufactured
-detailed listing of the standard amounts of materials, labour, and overhead that should go into a unit of product, multiplied by the standard price that has been set for each cost element.
Standards can be broken down into two areas:
1. Ideal Standards: allow for no machine breakdowns or other work interruptions and require peak efficiency at all times (Not reasonable)
2. Practical Standards: allow for normal machine downtime and other work interruptions that can be attained through reasonable efforts by the average employee (Not easy but attainable)
Standard Price Per Unit: the price that should be paid for a single unit of materials considering the quality, quantity purchased, shipping, receiving etc. Does not consider how the materials are used.
Standard Quantity Per Unit: the