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Chapter 9 Standard Costing and Variance Analysis

Chapter 9 Standard Costing and Variance Analysis. Fall 2007 Crosson. Learning Objectives:. Responsibility Accounting & Cost Centers Cost Performance Evaluation using Master and Flexible Budgets Standard Costing Basics for Cost Centers

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Chapter 9 Standard Costing and Variance Analysis

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  1. Chapter 9 Standard Costing and Variance Analysis Fall 2007 Crosson Use only with permission of Susan Crosson

  2. Learning Objectives: Responsibility Accounting & Cost Centers Cost Performance Evaluation using Master and Flexible Budgets Standard Costing Basics for Cost Centers Performance Evaluation using Standard Costing: Spending and Efficiency Variances Compute and Analyze DM,DL,VOH, and FOH variances Use only with permission of Susan Crosson

  3. Responsibility Accounting:Cost Center: An information system that classifies data according to a manager’s responsibilities for organizational resources Manager accountable for costs that have well-defined relationships between the center’s resources and products or services. Use only with permission of Susan Crosson

  4. Cost Performance Evaluation using Flexible and Master Budgets Use only with permission of Susan Crosson

  5. What Do You Know?Flexible Budget Preparation Look and listen to SE5. P2 parts 3 & 4 Use only with permission of Susan Crosson

  6. P2 Cost Performance Evaluation Use only with permission of Susan Crosson

  7. Performance Evaluation using Flexible and Master Budgets Standard Costing Use only with permission of Susan Crosson

  8. Standard Costing Basics: Master Budget Prepared for year As part of the Master Budget, Standard Quantities and Rates set for Materials, Labor, Variable Overhead and Fixed Overhead (i.e., predetermined rates—remember applied OH? During year Journal Entries use these Standards Managers monitor Cost Centers by computing and analyzing Price and Quantity Variances for Materials, Labor and Variable Overhead and Budget and Volume Variances for Fixed Overhead Use only with permission of Susan Crosson

  9. Material, Labor, and Variable Overhead Variances Spending or Price or Rate Variance Efficiency or Quantity Variance Use only with permission of Susan Crosson

  10. BUDGET: The variable standard cost of producing one case of steel brackets is: Direct material (5 pounds @ $1 per pound) $ 5.00 Direct labor (2 hours @ $2 per hour) $ 4.00 Variable overhead (2 hours @ $3 per hour) $ 6.00 Thus, total variable cost per case $15.00. The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH). Based on a master budget of 20,000 cases. ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were: Direct material (5 pounds @ $.90 per pound $ 4.50 Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05 Variable overhead ($148,750/25,000 cases) $ 5.95 The actual fixed overhead was $105,250. Use the following information to answer questions: The California Steel Works uses a standard costing system. Use only with permission of Susan Crosson

  11. Material, Labor, and Variable Overhead Variances Spending or Price or Rate Variance Efficiency or Quantity Variance Use only with permission of Susan Crosson

  12. Material, Labor, and Variable Overhead Variances Favorable or Unfavorable Spending or Price or Rate Variance Favorable or Unfavorable Efficiency or Quantity Variance Use only with permission of Susan Crosson

  13. Crosswalk to Variable Overhead Account Variable Overhead Dr. OH xx Cr. COGS xx Dr. COGS xx Cr. OH xx

  14. Fixed Overhead Variances Budget or Spending or Controllable Variance Volume or Uncontrollable Variance Use only with permission of Susan Crosson

  15. Crosswalk to Fixed Overhead Account Fixed Overhead Dr. COGS xx Cr. OH xx Dr. OH xx Cr. COGS xx

  16. BUDGET: The variable standard cost of producing one case of steel brackets is: Direct material (5 pounds @ $1 per pound) $ 5.00 Direct labor (2 hours @ $2 per hour) $ 4.00 Variable overhead (2 hours @ $3 per hour) $ 6.00 Thus, total variable cost per case $15.00 The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH). Based on a master budget of 20,000 cases. ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were: Direct material (5 pounds @ $.90 per pound $ 4.50 Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05 Variable overhead ($148,750/25,000 cases) $ 5.95 The actual fixed overhead was $105,250. Use the following information to answer questions: The California Steel Works uses a standard costing system. Use only with permission of Susan Crosson

  17. Fixed Overhead Variances Favorable or UnfavorableVolume or Uncontrollable Variance Favorable or Unfavorable Budget or Spending or Controllable Variance Use only with permission of Susan Crosson

  18. What Do You Know?Compute and Analyze DM,DL,VOH, and FOH variances P4 Look and listen SE6 , SE7, SE8. Use only with permission of Susan Crosson

  19. What Do You Know?Variance Analysis P3 P7 Use only with permission of Susan Crosson

  20. Homework P4 Use only with permission of Susan Crosson

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