Education

1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Chapter 10
Standard Costing,
Operational
Performance
Measures, and the
Balanced Scorecard

2. 10-2
Managing Costs
Standard
cost
Actual
cost
Comparison between
standard and actual
performance
level
Cost
variance

3. 10-3
Standard
1.Something which is determined and
referred due to
a. previous operation or historical data
b. Know the need ... (specification, …)

4. 10-4
Standard water for airplane to
land
= 4mm

5. 10-5
Management by Exception
Direct
Material
Managers focus on quantities and costs
that exceed standards, a practice known as
management by exception.
Type of Product Cost
Amount
Direct
Labor
Standard

6. 10-6
Setting Standards
Analysis of
Historical Data
Task
Analysis
Cost
Standards

7. 10-7
Accountants, engineers, personnel
administrators, and production managers
combine efforts to set standards based on
experience and expectations.
Participation in Setting Standards

8. 10-8
Perfection versus Practical
Standards: A Behavioral Issue
Should we use
practical standards
or perfection
standards?
Practical standards
should be set at levels
that are currently
attainable with
reasonable and
efficient effort.

9. 10-9
I agree. Perfection
standards are
unattainable and
therefore discouraging
to most employees.
Perfection versus Practical
Standards: A Behavioral Issue

10. 10-10
Use of Standards by
Service Organizations
• Standard cost
analysis may be used
in any organization
with repetitive tasks.
• A relationship
between tasks and
output measures
must be established.

11. 10-11
A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity
× × ×
Actual Price Standard Price Standard Price
Price Variance Quantity Variance
Materials price variance Materials quantity variance
Labor rate variance Labor efficiency variance
Variable overhead Variable overhead
spending variance efficiency variance
AQ(AP - SP) SP(AQ - SQ)
AQ = Actual Quantity SP = Standard Price
AP = Actual Price SQ = Standard Quantity

12. 10-12
1. Size of variance
1. Dollar amount
2. Percentage of standard
2. Recurring variances
3. Trends
4. Controllability
5. Favorable variances
6. Costs and benefits
of investigation
Significance of Cost Variances
What clues help me
to determine the
variances that I should
investigate?

13. 10-13
Statistical Control Chart
1 2 3 4 5 6 7 8 9
Variance Measurements
Favorable Limit
Unfavorable Limit
Desired Value
•
•
•
• •
•
•
•
•
Warning signals for investigation

14. 10-14
If I buy cheaper materials, my direct-
materials expenses will be lower than
what is budgeted. Then I’ll get my bonus.
But we may lose customers because of
lower quality.
Behavioral Impact of Standard
Costing

15. 10-15
Interaction among Variances
I am not responsible for
the unfavorable labor
efficiency variance!
You purchased cheap
material, so it took more
time to process it.
You used too much
time because of poorly
trained workers and
poor supervision.

16. 10-16
Standard Costs and Product
Costing
Standard material and labor costs
are entered into Work-in-Process
inventory instead of actual costs.
Standard cost variances
are closed directly to
Cost of Goods Sold.

17. 10-17
Advantages of Standard Costing
Management by
Exception
Stable Product
Costs
Sensible Cost
Comparisons
Advantages
Performance
Evaluation
Employee
Motivation