Module6-StandardCosting

Module 6 – Standard CostingJune 4, 2001

Costing Systems Actual Full Absorption (job order & process) Normal Full Absorption (job order) Variable (job order & process) – (internal only) Activity- Based (job order & process) Standard Costing (process)

Standard Costing Mfg Standards are set for:

Quantity of each input Price of each input

Actual Costs are captured for period Variances are calculated Total Costs must be adjusted (for

variances) for external reporting purposes

Standard Costing For Internal Purposes… Product is costed at standard Variance Analysis tells where

problems might be…

Standards Stated in terms of input required… …FOR ONE UNIT OF OUTPUT Ideal Standard or Practical standard?

Example:Standard: for each unit of output, the mfgprocess should use 2.00 gallons of material, and require 1.00 man hour of labor.

Material should cost $5.00 per gallon, and laborshould cost $13.00 per manhour.

Overhead is charged at $10 per labor hour.

Product Cost at Standard2 gallons per unit x $5/gallon = $10 materials

1 manhour per unit x $13/mhr = $13 labor

1 manhour per unit x $10/mhr = $10 overhead

TOTAL PRODUCT COST: $33 per unit

Example:During August, the plant produced 24,000 units of output.

Actual material cost was $246,020.Actual labor cost was $295,680.Actual overhead cost was $263,000.

Party? Or Stuff hitting the fan?

Example:During August, the plant produced 24,000 units of output.

24,000 x 2 gallons = 48,000 gallons48,000 gallons x $5/gal = $240,000 material cost

Example:

During August, the plant produced 24,000 units of output.

24,000 x 2 gallons = 48,000 gallons48,000 gallons x $5/gal = $240,000 material cost

$240,000 standard vs. $246,020 actual cost

Closer Look…

Actual gallons used: 47,040 gallonsStandard gallons allowed: 48,000 gallons

Actual price paid per gallon: $5.23Standard price per gallon: $5.00

Variance Analysis…AQxAP AQxSP SQxSP

47040 47,040 48,000 x x x$5.23 $5.00 $5.00

$246,020 $235,200 $240,000

Variance Analysis…AQxAP AQxSP SQxSP

47040 47,040 48,000 x x x$5.23 $5.00 $5.00

$246,020 $235,200 $240,000

PRICEVARIANCE

QUANTITY VARIANCE

Variance Analysis…AQxAP AQxSP SQxSP

47040 47,040 48,000 x x x$5.23 $5.00 $5.00

$246,020 $235,200 $240,000

PRICEVARIANCE

QUANTITY VARIANCE

$10,820 (u) $4800 (f)

Closer Look…

Actual labor hours used: 26,400 hoursStandard hours allowed: 24,000 hours

Actual rate paid per hour: $11.20Standard rate per hour: $13.00

Variance Analysis…AQxAP AQxSP SQxSP

26,400 26,400 24,000 x x x$11.20 $13.00 $13.00

$295,680 $343,200 $312,000

Variance Analysis…AQxAP AQxSP SQxSP

26,400 26,400 24,000 x x x$11.20 $13.00 $13.00

$295,680 $343,200 $312,000

RATEVARIANCE

EFF’Y VARIANCE

$47,520 (f) $31,200 (u)

Overheads?

Variance Analysis…AQxAP AQxSP SQxSP

26,400 24,000 x x $10.00 $10.00

$263,000 $264,000 $240,000

Variance Analysis…AQxAP AQxSP SQxSP

26,400 24,000 x x $10.00 $10.00

$263,000 $264,000 $240,000

SPENDINGVARIANCE

EFF’YVARIANCE

$1000 (f) $24,000 (u)

SummaryPrice or

RateUsage or Efficiency

Total Variance

Materials $10,820 (u) $4,800 (f) $6,020 (u)

Labor $47,520 (f) $31,200 (u) $16,320 (f)

Overhead $1000 (f) $24,000 (u) $23,000 (u)

$12,700 (u)

Product Cost at Standard2 gallons per unit x $5/gallon = $10 materials1 manhour per unit x $13/mhr = $13 labor1 manhour per unit x $10/mhr = $10 overheadTOTAL PRODUCT COST: $33 per unit

$33.00 per unit X 24,000 units = $792,000

Example:During August, the plant produced 24,000 units of output.

Actual material cost was $246,020.Actual labor cost was $295,680.Actual overhead cost was $263,000.

Total Mfg cost was $804,700

Example:Standard Cost ($33.00 per unit): $792,000Actual Cost ($33.53 per unit): $804,700

Total Variance: $12,700 (u)

Standard Costing Requires Variance Analysis

Materials: Price and Usage Labor: Rate and Efficiency Overhead: Spending and Efficiency

Gives Richer Information about Problem Areas

External Reporting … (!)