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Standard Costing Operational Performance Measures And
- 1. Cost Variance Presented By: Afia Standard Costing, Operational Performance Measures, and the Balanced Scorecard Ch 10
- 15. Direct Material Variances Standard quantity Allowed, given actual output Actual quantity used in the production of actual output Composition of these Quantities is the basis of the direct material quantity variance
Editor's Notes
- Standard Costing, Operational Performance Measures, and the Balanced Scorecard
- 1:To conduct cost variance analysis manager need to set some standards. 2:managerial accountants often need to adjust these predictions according to reflect movements in price levels or technological changes in the production process.
- New product has no historic data or cost upon which standards could based. This leads to task analysis. The accountants likely rely on the less expensive method of analyzing historical cost data to update the cost standards for the remainder of the production proces.
- 1: perfect- two school of thoughts exist one believe that this encourage labor to work harder to get closer to standards, other believe it discourage labor as they do think how much effort they put they can not achieve standards. 2: most behavioral theorist believe that practical standards are more encouraging to labor as these are more positive and productive attitudes.
- 1: two type of standards, quantity and price based. 2:to get better understanding of cost variance analysis we have illustrated an example of DCdeserts. A producer of deserts and provide to various bakeries. 3: here standard material quantity is the total amount of direct material normally required to produce a finished product, including allowances for normal waste or inefficiency.
- 1: standard material price is the total delivered cost after subtracting any purchase discount. 2:total standard cost for direct material serves as benchmarks against which to compare actual costs. This analysis further provides basis for controlling direct material cost.
- 1: as given data shows DCdeserts has spend cost then budgeted. Reasons will be: First Material purchased at high cost, second used more ingredients then standard amount. 2: managerial accountant can show these both variances by calculating a direct material price variance and direct material quantity variance.
- 1: when actual price exceed from standard price it known as unfavorable variance. And when actual price is less then standard price it known as favorable.
- 1: in order for the quantity variance be meaningful, standard quantity of material must be based on the actual production output It make no sense to compare at different level of budgeted and actual output. 2: standard or budgeted quantity must be based on actual output to provide helpful information to management. 3: quantity variance is based on quantity of material actually used in production.
- 1: quantity is number of direct labor hour normally needed to manufacture one unit of product. 2: rate is total hourly cost of compensation, including fringe benefits.
- 1: result of variance could be favorable and unfavorable. As actual exceed from standards is known as unfavorable variance and vise versa situation for favorable variance.
- In most of cases the production Manager is in the best position to influence the D.L rate variance. In other cases may be personnel manager / union negotiator would have greater influence
- 1:This means that actual direct labor hours used in September were less than standard allowed.
- 1: however rate and efficiency have opposite sign and these signs cancel as in arithmetic.