Here are the steps to calculate direct labor variances for Hanson Inc:
1. Standard hours to produce 1,000 Zippies = 1,000 x 1.5 = 1,500 hours
2. Standard direct labor cost = Standard hours x Standard rate
= 1,500 hours x $10/hour = $15,000
3. Actual direct labor hours worked last week = 1,550 hours
4. Actual direct labor cost = Actual hours x Actual rate
= Let's assume the actual rate is $10/hour
= 1,550 hours x $10/hour = $15,500
5. Labor efficiency variance = Standard hours - Actual hours
= 1,500 -
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
The document discusses activity-based costing (ABC) and activity-based management (ABM). It provides details on how Aerotech, a company that produces circuit boards, implemented ABC to more accurately assign overhead costs. ABC identified multiple cost pools associated with different activities. This revealed that the traditional costing system understated the costs of complex, low volume products. ABM focuses on managing activities to reduce costs by eliminating non-value added activities. Customer profitability analysis and just-in-time inventory systems are also discussed.
This summary provides an overview of key concepts from differential cost analysis and incremental decision making:
Differential cost analysis focuses on the differences in costs and revenues between alternative choices. It considers only costs and revenues that change with the decision. Incremental analysis compares the incremental revenue to the incremental costs of various options to determine the most profitable choice. For example, a company may analyze whether to make or buy a product based on the incremental costs and revenues of each option.
Job costing and process costing are two types of costing methods. Job costing is used when production is done in small batches to meet specific customer orders, with identifiable units tracked through production. Process costing is used for continuous production like chemicals, where costs are averaged over total units produced. Key differences are job costing tracks individual jobs while process costing averages costs over production batches. Both aim to determine accurate costs to measure profitability.
This presentation covers what standard costing is, its uses and limitations. Also included is a small case solved case study for better understanding of the topic.
Here are the steps to solve this problem:
2. The activity rates are computed as:
Assembling units: AED. 280,000/1,000 units = AED. 280 per unit
Processing orders: AED. 310,000/250 orders = AED. 1,240 per order
Supporting customers: AED. 100,000/100 customers = AED. 1,000 per customer
Activity-Based Costing System 26
3. The table showing overhead costs for VB's 80 units and 4 orders is:
Description Amount (AED.)
Direct materials cost (80 units x AED. 180) 14,400
Direct labor cost
The pecking order theory suggests that firms prefer internal financing over external financing and debt over equity. Under this theory, firms will first use retained earnings to finance projects and needs before considering external funds. If additional funds are needed, firms will take on debt before issuing new equity. The pecking order theory is based on the ideas that internal funds are cheapest, debt is cheaper than equity, and managers have more information about their firm than outside investors.
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
The document discusses activity-based costing (ABC) and activity-based management (ABM). It provides details on how Aerotech, a company that produces circuit boards, implemented ABC to more accurately assign overhead costs. ABC identified multiple cost pools associated with different activities. This revealed that the traditional costing system understated the costs of complex, low volume products. ABM focuses on managing activities to reduce costs by eliminating non-value added activities. Customer profitability analysis and just-in-time inventory systems are also discussed.
This summary provides an overview of key concepts from differential cost analysis and incremental decision making:
Differential cost analysis focuses on the differences in costs and revenues between alternative choices. It considers only costs and revenues that change with the decision. Incremental analysis compares the incremental revenue to the incremental costs of various options to determine the most profitable choice. For example, a company may analyze whether to make or buy a product based on the incremental costs and revenues of each option.
Job costing and process costing are two types of costing methods. Job costing is used when production is done in small batches to meet specific customer orders, with identifiable units tracked through production. Process costing is used for continuous production like chemicals, where costs are averaged over total units produced. Key differences are job costing tracks individual jobs while process costing averages costs over production batches. Both aim to determine accurate costs to measure profitability.
This presentation covers what standard costing is, its uses and limitations. Also included is a small case solved case study for better understanding of the topic.
Here are the steps to solve this problem:
2. The activity rates are computed as:
Assembling units: AED. 280,000/1,000 units = AED. 280 per unit
Processing orders: AED. 310,000/250 orders = AED. 1,240 per order
Supporting customers: AED. 100,000/100 customers = AED. 1,000 per customer
Activity-Based Costing System 26
3. The table showing overhead costs for VB's 80 units and 4 orders is:
Description Amount (AED.)
Direct materials cost (80 units x AED. 180) 14,400
Direct labor cost
The pecking order theory suggests that firms prefer internal financing over external financing and debt over equity. Under this theory, firms will first use retained earnings to finance projects and needs before considering external funds. If additional funds are needed, firms will take on debt before issuing new equity. The pecking order theory is based on the ideas that internal funds are cheapest, debt is cheaper than equity, and managers have more information about their firm than outside investors.
Standard costing is a technique that uses predetermined standards for costs and revenues to control performance through variance analysis. Standards are established for inputs and outputs and are used to assess performance, control costs, motivate staff, and provide guidance to improve performance. Variances measure the difference between actual and standard costs and revenues and are classified into material, labor, overhead, and sales categories to identify reasons for non-standard performance. Material variances include price, usage, mix, and yield components.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
This document provides an overview of financial markets and institutions. It discusses the key functions of financial markets in channeling funds from surplus to deficit units. It describes the structure of financial markets, including the distinction between debt and equity markets, primary vs secondary markets, and money vs capital markets. The main instruments traded in these markets are also outlined. The document then discusses the role of financial institutions in providing indirect finance and transforming financial assets. It identifies the main types of financial institutions like depository institutions, contractual savings institutions, and investment intermediaries. Finally, it covers the rationale for regulating financial markets and institutions to increase information and ensure overall financial system stability.
Standard costing is a technique used to measure differences between actual and expected costs. A variance is the difference between standards and actual performance. Material, labor, and overhead variances can be classified by function, measurement, or result. Material variances include price, usage, mix, and yield variances. Labor variances include rate, efficiency, idle time, mix, and yield variances. Variances are either favorable if actual is lower than standard or adverse if actual exceeds standard. Examples show how to calculate variances for a manufacturing company.
The document discusses the estimation of cash flows for capital budgeting and expenditure decisions. It defines capital expenditures as long-term investments like purchasing assets that generate cash flows beyond one year. It also discusses the importance of accurately estimating cash flows, the difficulties involved, and the key principles and components to consider when estimating cash flows for capital projects.
Variance analysis compares actual performance to budgets to identify deviations. There are different types of variances including material, labor, and overhead variances. Material variances measure differences in price and quantity used versus standard. Labor variances include rate, efficiency, idle time, mix, and yield. Overhead variances measure differences in variable and fixed overhead expenditures and volumes versus standards. The goal is to control costs by investigating variances and their causes.
The document discusses variance analysis, relevant costing, and cost-volume-profit analysis. It defines a variance as the difference between a budgeted or standard cost and an actual cost. Variance analysis identifies reasons for deviations from budgets. Relevant costing considers only incremental and avoidable costs for decision making. Cost-volume-profit analysis examines how operating profit is affected by variable costs, fixed costs, sales price, and sales volume or mix. Contribution margin is sales minus variable costs and shows how much each sale contributes to covering fixed costs.
Activity based costing ppt @ mba finaceBabasab Patil
Activity based costing (ABC) provides a more accurate method for assigning overhead costs than conventional costing methods. ABC identifies the activities performed in an organization and assigns costs to products based on their consumption of activities. It recognizes that resources are used to perform activities, not directly by products. ABC involves identifying activities, assigning resource costs to activities, defining activity drivers, and calculating activity costs to determine the full cost of products and services. ABC provides managers with more accurate cost information to improve process efficiency.
- The document discusses key aspects of job-order costing, including tracking the flow of costs through raw materials, work in process, finished goods, and cost of goods sold accounts.
- It explains how to record transactions like purchasing raw materials, applying labor costs, applying manufacturing overhead, and transferring completed jobs to finished goods inventory.
- Journal entries are provided as examples to record these transactions and show the flow of costs through a job-order costing system.
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
The document discusses the concept of time value of money, which is the principle that money received today is worth more than the same amount in the future due to its potential to earn interest. It defines key terms like present value and future value and provides formulas to calculate them. An example calculation demonstrates that receiving $10,000 today is preferable to receiving the same amount in 3 years, since the present value of $10,000 in 3 years at a 10% interest rate is $7,513.10. Understanding time value of money is important for financial decision making regarding investments, loans, savings, and more.
The document summarizes key concepts from a chapter on cost-volume-profit (CVP) analysis. It covers CVP assumptions and terminology, essential features of CVP analysis including determining the break-even point, incorporating income taxes into CVP, using CVP for decision making and sensitivity analysis, and adapting CVP for alternative cost structures. Examples are provided to illustrate calculating break-even units and revenues, conducting sensitivity analysis using spreadsheets, and evaluating different rental options for a software company using CVP analysis.
Solutions Manual for Managerial Accounting 5th Edition by Wildriven019
This document contains solutions to chapter 2 questions and exercises from the 5th edition Managerial Accounting textbook by Wild. It provides the solutions manual, test bank, and quick study questions and exercises related to job order costing. Key points covered include: calculating predetermined overhead rates, applying overhead to jobs, tracking costs on job cost sheets, and transferring costs of completed jobs to inventory accounts.
Measures of cost of capital
The cost of capital is the cost of obtaining funds, through debt or equity, in order to finance an investment.
The cost of capital represents the overall cost of financing to the firm.
This document provides information about Activity-Based Costing (ABC), including:
- ABC traces resource consumption and costs final outputs based on activity consumption estimates and cost drivers.
- ABC arose in the 1980s as traditional cost accounting methods became less relevant due to changes in industry.
- ABC assigns costs to specific activities first, then assigns activity costs to products based on cost drivers and consumption, providing more accurate product costs than traditional methods.
- ABC identifies wasteful activities and improves processes, leading to more accurate pricing, profitability analysis, and cost reduction. However, ABC is more expensive to implement and maintain than traditional methods.
The document discusses brand valuation and outlines several key points:
1. Initially, tangible assets were seen as the main business value, but recognition of intangible value like brands grew with the increasing gap between book and market values.
2. Brands are valuable assets that can be quantified and valued using various approaches like discounted cash flow analysis and calculating the brand's contribution to profits.
3. A five step process for brand valuation includes market segmentation, financial analysis, demand analysis, competitive benchmarking, and calculating the brand value.
Matching Concept is pivotal in Accounting profession. Every time financials are made, matching concept has to be dealt with. It says that the revenue earned from a specific period shall be matched with the expenses incurred in same period in order to ensure consistency in reporting.
The document defines variances as differences between standard and actual costs. It discusses computing variances for material costs, including material cost, price, usage, mix, and yield variances. It also discusses labor cost and rate variances. Variances are classified and examples are provided to demonstrate how to calculate different types of variances based on standard and actual data. The key information is on defining and calculating different types of variances to identify reasons for deviations between actual and standard performance.
This document provides an overview of transfer pricing. It defines transfer pricing as the price at which divisions of a company transact with each other. The document outlines several purposes of transfer pricing, including evaluating division performance and shifting profits between tax jurisdictions. It also discusses transfer pricing methods, influences on companies, disadvantages, and provides an example to illustrate how transfer pricing can benefit a company.
The document discusses standard costing variances at Ren Corporation's Cutting Department. It provides standards and actual data for materials, labor, and overhead costs. Variances are then calculated between actual and standard quantities, prices, spending rates, and fixed overhead amounts. Price, quantity, rate, efficiency, spending, budget, and volume variances are all identified as favorable or unfavorable based on the analysis.
This document provides an overview of standard costing and variance analysis. It defines standard costs as realistic estimates of costs used to set performance targets. Standard costs are developed for direct materials, direct labor, and manufacturing overhead. Variance analysis compares standard costs to actual costs to identify differences known as variances. Managers use variance analysis to control costs by investigating significant variances and taking corrective actions. The document demonstrates how to calculate variances for direct materials costs.
Standard costing is a technique that uses predetermined standards for costs and revenues to control performance through variance analysis. Standards are established for inputs and outputs and are used to assess performance, control costs, motivate staff, and provide guidance to improve performance. Variances measure the difference between actual and standard costs and revenues and are classified into material, labor, overhead, and sales categories to identify reasons for non-standard performance. Material variances include price, usage, mix, and yield components.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
This document provides an overview of financial markets and institutions. It discusses the key functions of financial markets in channeling funds from surplus to deficit units. It describes the structure of financial markets, including the distinction between debt and equity markets, primary vs secondary markets, and money vs capital markets. The main instruments traded in these markets are also outlined. The document then discusses the role of financial institutions in providing indirect finance and transforming financial assets. It identifies the main types of financial institutions like depository institutions, contractual savings institutions, and investment intermediaries. Finally, it covers the rationale for regulating financial markets and institutions to increase information and ensure overall financial system stability.
Standard costing is a technique used to measure differences between actual and expected costs. A variance is the difference between standards and actual performance. Material, labor, and overhead variances can be classified by function, measurement, or result. Material variances include price, usage, mix, and yield variances. Labor variances include rate, efficiency, idle time, mix, and yield variances. Variances are either favorable if actual is lower than standard or adverse if actual exceeds standard. Examples show how to calculate variances for a manufacturing company.
The document discusses the estimation of cash flows for capital budgeting and expenditure decisions. It defines capital expenditures as long-term investments like purchasing assets that generate cash flows beyond one year. It also discusses the importance of accurately estimating cash flows, the difficulties involved, and the key principles and components to consider when estimating cash flows for capital projects.
Variance analysis compares actual performance to budgets to identify deviations. There are different types of variances including material, labor, and overhead variances. Material variances measure differences in price and quantity used versus standard. Labor variances include rate, efficiency, idle time, mix, and yield. Overhead variances measure differences in variable and fixed overhead expenditures and volumes versus standards. The goal is to control costs by investigating variances and their causes.
The document discusses variance analysis, relevant costing, and cost-volume-profit analysis. It defines a variance as the difference between a budgeted or standard cost and an actual cost. Variance analysis identifies reasons for deviations from budgets. Relevant costing considers only incremental and avoidable costs for decision making. Cost-volume-profit analysis examines how operating profit is affected by variable costs, fixed costs, sales price, and sales volume or mix. Contribution margin is sales minus variable costs and shows how much each sale contributes to covering fixed costs.
Activity based costing ppt @ mba finaceBabasab Patil
Activity based costing (ABC) provides a more accurate method for assigning overhead costs than conventional costing methods. ABC identifies the activities performed in an organization and assigns costs to products based on their consumption of activities. It recognizes that resources are used to perform activities, not directly by products. ABC involves identifying activities, assigning resource costs to activities, defining activity drivers, and calculating activity costs to determine the full cost of products and services. ABC provides managers with more accurate cost information to improve process efficiency.
- The document discusses key aspects of job-order costing, including tracking the flow of costs through raw materials, work in process, finished goods, and cost of goods sold accounts.
- It explains how to record transactions like purchasing raw materials, applying labor costs, applying manufacturing overhead, and transferring completed jobs to finished goods inventory.
- Journal entries are provided as examples to record these transactions and show the flow of costs through a job-order costing system.
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
The document discusses the concept of time value of money, which is the principle that money received today is worth more than the same amount in the future due to its potential to earn interest. It defines key terms like present value and future value and provides formulas to calculate them. An example calculation demonstrates that receiving $10,000 today is preferable to receiving the same amount in 3 years, since the present value of $10,000 in 3 years at a 10% interest rate is $7,513.10. Understanding time value of money is important for financial decision making regarding investments, loans, savings, and more.
The document summarizes key concepts from a chapter on cost-volume-profit (CVP) analysis. It covers CVP assumptions and terminology, essential features of CVP analysis including determining the break-even point, incorporating income taxes into CVP, using CVP for decision making and sensitivity analysis, and adapting CVP for alternative cost structures. Examples are provided to illustrate calculating break-even units and revenues, conducting sensitivity analysis using spreadsheets, and evaluating different rental options for a software company using CVP analysis.
Solutions Manual for Managerial Accounting 5th Edition by Wildriven019
This document contains solutions to chapter 2 questions and exercises from the 5th edition Managerial Accounting textbook by Wild. It provides the solutions manual, test bank, and quick study questions and exercises related to job order costing. Key points covered include: calculating predetermined overhead rates, applying overhead to jobs, tracking costs on job cost sheets, and transferring costs of completed jobs to inventory accounts.
Measures of cost of capital
The cost of capital is the cost of obtaining funds, through debt or equity, in order to finance an investment.
The cost of capital represents the overall cost of financing to the firm.
This document provides information about Activity-Based Costing (ABC), including:
- ABC traces resource consumption and costs final outputs based on activity consumption estimates and cost drivers.
- ABC arose in the 1980s as traditional cost accounting methods became less relevant due to changes in industry.
- ABC assigns costs to specific activities first, then assigns activity costs to products based on cost drivers and consumption, providing more accurate product costs than traditional methods.
- ABC identifies wasteful activities and improves processes, leading to more accurate pricing, profitability analysis, and cost reduction. However, ABC is more expensive to implement and maintain than traditional methods.
The document discusses brand valuation and outlines several key points:
1. Initially, tangible assets were seen as the main business value, but recognition of intangible value like brands grew with the increasing gap between book and market values.
2. Brands are valuable assets that can be quantified and valued using various approaches like discounted cash flow analysis and calculating the brand's contribution to profits.
3. A five step process for brand valuation includes market segmentation, financial analysis, demand analysis, competitive benchmarking, and calculating the brand value.
Matching Concept is pivotal in Accounting profession. Every time financials are made, matching concept has to be dealt with. It says that the revenue earned from a specific period shall be matched with the expenses incurred in same period in order to ensure consistency in reporting.
The document defines variances as differences between standard and actual costs. It discusses computing variances for material costs, including material cost, price, usage, mix, and yield variances. It also discusses labor cost and rate variances. Variances are classified and examples are provided to demonstrate how to calculate different types of variances based on standard and actual data. The key information is on defining and calculating different types of variances to identify reasons for deviations between actual and standard performance.
This document provides an overview of transfer pricing. It defines transfer pricing as the price at which divisions of a company transact with each other. The document outlines several purposes of transfer pricing, including evaluating division performance and shifting profits between tax jurisdictions. It also discusses transfer pricing methods, influences on companies, disadvantages, and provides an example to illustrate how transfer pricing can benefit a company.
The document discusses standard costing variances at Ren Corporation's Cutting Department. It provides standards and actual data for materials, labor, and overhead costs. Variances are then calculated between actual and standard quantities, prices, spending rates, and fixed overhead amounts. Price, quantity, rate, efficiency, spending, budget, and volume variances are all identified as favorable or unfavorable based on the analysis.
This document provides an overview of standard costing and variance analysis. It defines standard costs as realistic estimates of costs used to set performance targets. Standard costs are developed for direct materials, direct labor, and manufacturing overhead. Variance analysis compares standard costs to actual costs to identify differences known as variances. Managers use variance analysis to control costs by investigating significant variances and taking corrective actions. The document demonstrates how to calculate variances for direct materials costs.
Installation of a costing system is an investment rather than an expense because the rewards are greater than the costs. The costing system should be designed to meet the specific needs of the business, not the other way around. There are general considerations for installing a costing system, such as objectives, area of operation, data collection, cost records, and control methods. Specific considerations include business size and nature, products, organization structure, and functional studies. Successful implementation requires top management support, staff cooperation, adequate training, and managing costs of installation and operation. The system should be simple, flexible, minimally disruptive, and gradually introduced to build confidence.
Installation of a costing system is an investment rather than an expense because the rewards are greater than the costs. The costing system should be designed to meet the specific needs of the business, not the other way around. There are general considerations for installing a costing system, such as objectives, area of operation, data collection, cost records, and control methods. Specific considerations include business size and nature, products, organization structure, and functional studies. Successful implementation requires top management support, staff cooperation, adequate training, and managing costs of installation and operation. The system should be simple, flexible, minimally disruptive, and gradually introduced to build confidence.
Cost accounting is the process of recording, classifying, allocating and reporting costs to provide information to managers. It determines unit costs to help set prices and control costs. Management uses cost information to make production policy decisions. Managerial accounting provides internal data for management while financial accounting provides external data for outsiders. Both use the same accounting principles but differ in purpose and scope. Cost accounting controls costs through standard costing and budgeting.
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El documento presenta las reglas para multiplicar expresiones algebraicas. Explica que al multiplicar términos se multiplican primero los signos, luego los coeficientes, y por último se suman los exponentes de las mismas letras. Proporciona un ejemplo de la multiplicación de un monomio por un monomio y de un binomio por un binomio. Finalmente, incluye un enlace a un video que ofrece más explicación sobre el tema.
Mars Travelport offers various tour packages in India including adventure tours, pilgrimage tours, wildlife tours, and medical tours. Some highlighted adventure tours include trekking in Ladakh, river rafting in Rishikesh, and camping in Chopta and Har Ki Dun. Mars Travelport also provides luxury car rentals and is a one-stop shop for all travel needs, offering transportation, tours, and corporate event planning services.
The document discusses Activity Based Costing (ABC), an approach for assigning overhead costs to products and services. It notes that traditional costing methods can misallocate overhead, affecting management decisions. ABC addresses this by tracing overhead costs to the activities that cause those costs, and then assigning the costs of each activity to products based on their use of that activity. This provides a more accurate picture of product costs. The document outlines the basic concepts and steps of implementing ABC, including identifying activities, assigning resource costs to activities, defining activity cost drivers, and calculating activity costs to allocate to cost objects like products.
This document summarizes a 1-year Diploma in Hospitality Management program offered by Aptech Aviation & Hospitality Academy in collaboration with Mahatma Gandhi University. The program trains students for careers in the hospitality sector, covering areas like food and beverage, front office, housekeeping, and more. It notes that the hospitality industry in India is worth $17 billion and needs 20,000 trained professionals per year, far more than the current supply. The diploma program includes modules over two semesters, a live project, optional internship, and placement support upon completion.
WiMAX is a wireless technology that can provide broadband access over long distances. It uses wireless transmission in the 2-11 GHz range to connect users to a base station up to 50 km away. From the base station, users can access the internet and other public networks at speeds up to 70 Mbps shared among users. WiMAX allows both line-of-sight and non-line-of-sight connections using adaptive burst profiles. It has the potential to provide high-speed wireless internet access to areas not reached by cables and DSL.
Mars Travelport provides corporate travel services including employee transportation, luxury cars for rent, and planning meetings, incentives, conferences, and events. It aims to provide top quality and comfortable transportation solutions to businesses. Mars Travelport has a fleet of premium cars and coaches driven by uniformed chauffeurs. It works with many large corporations in sectors like banking, FMCG, hotels, and IT to transport employees. Mars Travelport believes providing ground transportation solutions can help clients enhance performance and be more productive while focusing on their core business. It also offers tours, travel, air charters, and wedding planning services.
The document discusses the EU ETS carbon market and emissions trading scheme. It is related to a Master's 1 program in energy and the contact person is provided as F.BENHMAD at the University of Montpellier with an email address.
Wemakedesign is a branding and design consultancy established in 2004 focusing on identity and brand creation for small and medium businesses. They have since expanded to work with both large corporations and emerging enterprises. The document provides an overview of Wemakedesign's services and approach, as well as profiles of the creative partners and examples of work. Their process involves discovery, definition, creation, and implementation phases to develop brand strategies and visual identities that meet client objectives.
This document discusses standard costs and variance analysis. It begins by defining standard costs and the two types of standards used - quantity and price standards. It then discusses how variances from standards are analyzed and how this analysis cycle is used. The document provides examples of setting direct material and direct labor standards and computing variances for both. It discusses responsibility for variances and how variances are used.
Variance analysis quantifies the difference between actual and planned performance. It is used to maintain control over a business. Major cost variances include:
1. Direct material price and quantity variances which measure the difference between actual and standard material costs.
2. Direct labor rate and efficiency variances which compare actual labor hours and rates to standards.
3. Variable overhead spending and efficiency variances which show the difference between actual and standard variable overhead costs.
4. Fixed overhead variance compares actual fixed overhead to the budgeted amount.
Standard costing involves setting standards for materials, labor, and overhead and comparing actual costs to the standards to calculate variances. It has several advantages as a management tool including cost control, finding inefficiencies, and measuring efficiency. Some limitations include difficulty setting standards for non-standard products and not considering all circumstances when setting standards. The document provides examples of calculating variances for materials, labor, and overhead costs based on standard and actual amounts. It also discusses classification of standards, revising standards, and advantages and limitations of standard costing.
Standard Costing Operational Performance Measures Andafiali
A cost management system measures the costs of activities, identifies unnecessary costs, and finds ways to improve performance. It has three parts: predetermined standards of performance, actual performance measures, and comparisons of standards to actuals with corrective actions. Managers focus on significant cost variances to determine their causes and reduce problems. Standards can be set through historical analysis, task analysis, or a combined approach. Direct material and labor variances are calculated to measure differences between actual and standard quantities and prices used and costs.
Standard costing is a technique that uses predetermined standards for costs and revenues to control performance through variance analysis. Standards are established for inputs and outputs and are used to assess performance, control costs, motivate staff, and provide guidance to improve performance. Variances measure the difference between actual and standard costs and revenues and are classified into material, labor, overhead, and sales categories to identify reasons for non-standard performance. Material variances include price, usage, mix, and yield components.
- Standard costing involves determining standard costs for materials, labor, and overhead and comparing them to actual costs incurred. Variances between standard and actual costs are calculated and analyzed.
- The key aspects of standard costing include establishing standard costs, tracking actual costs, calculating variances between the two, and analyzing significant variances to improve efficiency. Standard costs are predetermined estimates for direct materials, direct labor, and factory overhead to manufacture a product.
- Variances are measured for direct materials, direct labor, and overhead and can be favorable or unfavorable depending on whether actual costs were lower or higher than standards. Material variances include price, quantity, mix, and yield variances while labor variances include rate and
This document discusses standard costing and variance analysis techniques. It begins by explaining that standard costing involves setting standard costs for items and activities, and comparing actual costs to standards. Variance analysis compares actual costs to standard costs to identify areas where costs are higher or lower than expected. The document then provides details on different types of standard cost variances, including price, efficiency, and usage variances, and whether they are favorable or unfavorable. It also discusses computing and analyzing variances for materials, labor, and factory overhead costs. Finally, it explains absorption costing, which accounts for all direct and indirect costs associated with manufacturing a product.
Understanding SAP production order varianceDhaval Gala
This document discusses production order variance and standard costs as a way to evaluate performance and increase efficiency. It explains that setting standards and measuring variances from those standards allows companies to identify areas for improvement. The document then provides details on calculating different types of variances, including direct material, direct labor, and manufacturing overhead variances. It describes separating the total variance for each into a price and quantity component to help analyze the sources of unfavorable or favorable variances.
Standard Costs Variance Analysis and its impact on Managerial AccountingGhous2
This document covers standard costs and variance analysis in managerial accounting. It defines standard costs and how they are developed, and explains how to calculate variances for direct materials, direct labor, and manufacturing overhead. Variances indicate differences between actual and standard costs, and are investigated to identify potential problems. Favorable variances are not always good, and process improvements can lead to unfavorable variances. The document provides examples of calculating variances and their financial impact.
The document discusses standard costs and variance analysis. It begins by defining standard costs and the types of standards used, including quantity and price standards. It then discusses how variances from standards are analyzed and how that analysis can be used for management decision making. The document provides examples of calculating variances for direct materials and direct labor. It also discusses how to set standards and how variances are used to hold different managers accountable.
The document discusses standard costs and variance analysis. It provides information on setting standards for direct materials, direct labor, and manufacturing overhead. It also explains how to calculate variances for actual costs compared to standards, including price, quantity, rate, and efficiency variances. Examples are provided to demonstrate calculating variances for direct materials and direct labor.
1. Standard costs are benchmarks used to measure performance against targets for inputs like direct materials, direct labor, and manufacturing overhead. Variances from standards are identified and reported.
2. Managers from different departments work together to set reasonable and attainable standards for direct materials, direct labor hours and rates, and variable overhead rates and activities. Variance analysis is used to identify issues.
3. Material variances are calculated based on the actual quantity purchased and price paid versus the standard quantity needed and price. The price variance is calculated on total quantity purchased while the quantity variance is only on amount used in production.
Ca chap 13 standard costing&variance analysis(2)DSDEVDA
This document discusses standard costing and variance analysis techniques. Standard costing involves setting predetermined standard costs that products should attain under given conditions. Variances measure the difference between actual and standard costs/results and can be classified in various ways, including functionally, based on measurement, results, and controllability. Key variances include material, labor, variable and fixed overhead variances. Standard costing is used for cost control, pricing, performance evaluation, and management objectives.
The document discusses standard costs and variance analysis. It begins by defining standards as benchmarks for measuring performance, including quantity and cost standards. It then provides examples of calculating variances for direct materials and direct labor. For materials, it calculates a price variance and quantity variance using an example where actual costs differed from standards. For labor, it similarly calculates a rate variance and efficiency variance. The document provides details on setting various types of standards and how managers from different departments collaborate on the process. It also explains how variances are analyzed and how that cycle works.
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2. Standard and Standard Cost
Standard is a precise measure of what should
occur if the performance is efficient.
For example a certain number of products (say
10) in one hour by a shop floor worker is a
standard
or certain marks (absolute or
percentage) to obtain a certain grade say A.
A worker and student is said to be efficient if
they achieve ( 8 and A) the given conditions.
Standards are set for repetitive tasks, that is, for
work which is repeated again and again. It can
not be for the task which are not repetitive or
performed regularly or continuously.
3. Standard and Budget
Scope of budget is as a whole activity or entire
operation i.e. Rs 5000 for producing 1000
units, on the other hand, standard are on unit
basis, say Rs 5 per unit.
Standards are prepared by Management
Account in consultation with other people, while
budget are usually prepared by Budget
committee.
Budgets are used for planning & coordination
purposes, whereas standards are primarily used
as control.
5. Management by Exception
Amount
Managers focus on quantities and costs
that exceed standards, a practice known as
management by exception.
Standard
Direct
Labor
Direct
Material
Type of Product Cost
1-5
7. Analysis of Historical Data
One Indicator of future costs is historical cost data.
In a mature production process, where the firm has a lot
of production experience, historical costs can provide a
good basis for predicting future costs.
Cost on the basis of behavior is used to analyze and
making predictions.
These predictions need to be adjusted to reflect
movements in price levels or technological changes in
the production process
1-7
8. Task Analysis
Another method for setting standards is task analysis,
which is the analysis of a production process to
determine what it should cost to produce a product or
service.
The emphasis shifts from what the product did cost in
the past to what it should cost in the future.
An example of task analysis is a time-and-motion study
conducted to determine how long each step performed
by direct laborers should require.
1-8
10. 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.
1-10
11. Perfection Standard
A perfection (or ideal) standard is one that can be
attained only under nearly perfect operating conditions.
Such standard assume peak efficiency, the lowest
possible input prices, the best quality material obtainable
and no disruptions in the production due to such causes
as machine breakdowns or power failures.
Some managers feel that such standard motivate
employees to achieve the lowest cost possible.
They claim that since the standard is theoretically
attainable, employees will have an incentive to come as
close as possible to achieving it.
1-11
12. Practical Standard
Standard that are as tight as practical, but still are expected to be
attained, are called practical or attainable standard.
Such standard assume a production process that is as efficient as
practical under normal operating conditions.
Practical standards allow for such occurrences as occasional
machine breakdowns and normal amounts of raw-material waste.
Attaining a practical standard keeps employees on their toes,
without demanding miracles.
Most behavioral theorist believe that such standard encourage more
positive and productive employee attitude than do perfection
standard.
1-12
13. Perfection versus Practical
Standards: A Behavioral Issue
I agree. Perfection
standards are
unattainable and
therefore discouraging
to most employees.
1-13
14. 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.
1-14
15. Cost Variance Analysis
Standard Cost Variances
Price Variance
Quantity Variance
The difference between
the actual price and the
standard price
The difference between
the actual quantity and
the standard quantity
1-15
16. A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Materials price SP)
AQ(AP - variance
Labor rate variance
AQ =Variable overhead
Actual Quantity
AP = spending variance
Actual Price
Standard Quantity
×
Standard Price
Quantity Variance
Materials quantity variance
SP(AQ - SQ)
Labor efficiency variance
SP = Standard Price
Variable overhead
SQ = Standard Quantity
efficiency variance
1-16
17. A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Standard price is the amount that should
have been paid for the resources acquired.
1-17
18. A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Standard quantity is the quantity that should
have been used.
1-18
19. Standard Costs
Let’s use the concepts
of the general model to
calculate standard cost
variances, starting with
direct material.
1-19
20. Direct Material Standard
The total amount of direct material
normally required to produce a finished
products, including allowances for normal
waste or inefficiency is called Standard
direct material quantity
21. Material Variances
Hanson Inc. has the following direct material
standard to manufacture one product:
1.5 pounds per product at $ 4.00 per pound
Last week 1,700 pounds of material were
purchased and used to make 1,000 products. The
material cost a total of $6,630.
1-21
22. Material Variances
Zippy
What is the actual price per pound
paid for the material?
a.
b.
c.
d.
$4.00 per pound.
$4.10 per pound.
$3.90 per pound.
$6.63 per pound.
1-22
23. Material Variances
What is the actual price per pound
paid for the material?
a.
b.
c.
d.
$4.00 per pound.
$4.10 per pound.
$3.90 per pound.
$6.63 per pound.
AP = $6,630 ÷ 1,700
AP = $3.90 per product
1-23
25. Material Variances
Hanson’s direct-material price variance (MPV)
for the week was:
a.
b.
c.
d.
$170 unfavorable.
$170 favorable.
$800 unfavorable.
MPV = AQ(AP - SP)
$800 favorable. MPV = 1,700 lbs. × ($3.90 - 4.00)
MPV = $170 Favorable
1-25
26. Material Variances
The standard quantity of material that
should have been used to produce
1,000 product is:
a.
b.
c.
d.
1,700 pounds.
1,500 pounds.
2,550 pounds.
2,000 pounds.
1-26
27. Material Variances
The standard quantity of material that
should have been used to produce
1,000 = 1,000 units × 1.5 lbs per unit
Zippies is:
SQ
a.
b.
c.
d.
SQ = 1,500 lbs
1,700 pounds.
1,500 pounds.
2,550 pounds.
2,000 pounds.
1-27
29. Material Variances
Zippy
Hanson’s direct-material quantity variance
(MQV) for the week was:
MQV = SP(AQ - SQ)
MQV = $4.00(1,700 lbs - 1,500 lbs)
MQV
a. $170 unfavorable. = $800 unfavorable
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
1-29
30. Material Variances Summary
Actual Quantity
×
Actual Price
1,700 lbs.
×
$3.90 per lb.
Actual Quantity
×
Standard Price
1,700 lbs.
×
$4.00 per lb.
$6,630
Price variance
$170 favorable
$ 6,800
Standard Quantity
×
Standard Price
1,500 lbs.
×
$4.00 per lb.
$6,000
Quantity variance
$800 unfavorable
1-30
31. Material Variances
Hanson purchased and
used 1,700 pounds.
How are the variances
computed if the amount
purchased differs from
the amount used?
Zippy
The price variance is
computed on the entire
quantity purchased.
The quantity variance is
computed only on the
quantity used.
1-31
32. Material Variances
Hanson Inc. has the following material
standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week 2,800 pounds of material were
purchased at a total cost of $10,920, and
1,700 pounds were used to make 1,000
Zippies.
1-32
33. Material Variances
Actual Quantity
Purchased
×
Actual Price
2,800 lbs.
×
$3.90 per lb.
Zippy
Actual Quantity
Purchased
×
MPV = AQ(AP - SP)
Standard Price
MPV = 2,800 lbs.
× ($3.90 - 4.00)
2,800 lbs.
MPV = $280
×
Favorable
$4.00 per lb.
$10,920
Price variance
$280 favorable
$11,200
Price variance increases
because quantity
purchased increases. 1-33
34. Material Variances
MQV = SP(AQ - SQ)
MQV = $4.00(1,700 lbs
- 1,500 lbs)
MQV = $800unfavor.
Actual Quantity
Used
Standard Quantity
×
×
Standard Price
Standard Price
1,700 lbs.
×
$4.00 per lb.
$6,800
Quantity variance is
unchanged because
actual and standard
quantities are unchanged.
1,500 lbs.
×
$4.00 per lb.
$6,000
Quantity variance
$800 unfavorable
1-34
35. Isolation of Material Variances
I need the variances as soon
as possible so that I can
better identify problems
and control costs.
You accountants just don’t
understand the problems
we production managers have.
Okay. I’ll start computing
the price variance when
material is purchased and
the quantity variance as
soon as material is used.
1-35
37. Labor Variances
Zippy
Hanson Inc. has the following direct labor
standard to manufacture one Zippy:
1.5 standard hours per Zippy at $10.00 per direct
labor hour
Last week 1,550 direct labor hours were
worked at a total labor cost of $15,810 to
make 1,000 Zippies.
1-37
38. Labor Variances
Zippy
What was Hanson’s actual rate (AR)
for labor for the week?
a.
b.
c.
d.
$10.20 per hour.
$10.10 per hour.
$9.90 per hour.
$9.80 per hour.
1-38
39. Labor Variances
Zippy
What was Hanson’s actual rate (AR)
for labor for the week?
a.
b.
c.
d.
$10.20 per hour.
$10.10 per hour.
AR = $15,810 ÷ 1,550 hours
$9.90 per hour. AR = $10.20 per hour
$9.80 per hour.
1-39
40. Labor Variances
Zippy
Hanson’s labor rate variance (LRV)
for the week was:
a.
b.
c.
d.
$310 unfavorable.
$310 favorable.
$300 unfavorable.
$300 favorable.
1-40
41. Labor Variances
Zippy
Hanson’s labor rate variance (LRV)
for the week was:
a.
b.
c.
d.
$310 unfavorable.
$310 favorable.
LRV = AH(AR - SR)
$300 unfavorable.
LRV = 1,550 hrs($10.20 - $10.00)
$300 favorable. = $310 unfavorable
LRV
1-41
42. Labor Variances
Zippy
The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a.
b.
c.
d.
1,550 hours.
1,500 hours.
1,700 hours.
1,800 hours.
1-42
43. Labor Variances
Zippy
The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a.
b.
c.
d.
1,550 hours.
1,500 hours.
1,700 hours. = 1,000 units × 1.5 hours per unit
SH
SH
1,800 hours. = 1,500 hours
1-43
44. Labor Variances
Zippy
Hanson’s labor efficiency variance (LEV)
for the week was:
a.
b.
c.
d.
$510 unfavorable.
$510 favorable.
$500 unfavorable.
$500 favorable.
1-44
45. Labor Variances
Zippy
Hanson’s labor efficiency variance (LEV)
for the week was:
LEV = SR(AH - SH)
LEV = $10.00(1,550 hrs - 1,500 hrs)
a. $510 unfavorable.= $500 unfavorable
LEV
b. $510 favorable.
c. $500 unfavorable.
d. $500 favorable.
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46. Labor Variances Summary
Actual Hours
×
Actual Rate
1,550 hours
×
$10.20 per hour
$15,810
Actual Hours
×
Standard Rate
1,550 hours
×
$10.00 per hour
$15,500
Rate variance
$310 unfavorable
Standard Hours
×
Standard Rate
1,500 hours
×
$10.00 per hour
$15,000
Efficiency variance
$500 unfavorable
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47. Significance of Cost Variances
Size of variance
– Amount
– Percentage of standard
What clues help me
to determine the
variances that I should
investigate?
Recurring variances
Trends
Controllability
Favorable variances
Costs and benefits of
investigation
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49. Behavioral Impact of Standard
Costing
If I buy cheaper materials, my directmaterials expenses will be lower than
what is budgeted. Then I’ll get my bonus.
But we may lose customers because of
lower quality.
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51. 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.
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52. Advantages of Standard Costing
Sensible Cost
Comparisons
Management by
Exception
Performance
Evaluation
Advantages
Stable Product
Costs
Employee
Motivatio
n
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53. Criticisms of Standard Costing
Too aggregate,
too late
Too much focus
on direct-labor
Disadvantages
Not tied to
specific product line
Shorter product
life cycles
Focus on cost
minimization
Stable production
required
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54. Adapting Standard-Costing Systems
Reduced focus
on labor
Identify Cost
Drivers
Impact of TQM
and JIT
Shorter product
life cycles
Nonfinancial
Measures
Focus on material
and overhead
Shifting cost
structures
Elimination of nonvalue added costs
Real-Time
Information Systems
Benchmarking
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