introduction to accounting
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Introduction to Accounting. Standard Costing Session 31 February 21,2002. Agenda for Today. Discuss problems assigned and other practice problems Outline approaches to future problems. Unit cost standards. Specification of unit cost standards: Direct materialsp × sq - PowerPoint PPT PresentationTRANSCRIPT
04/19/23 A&MIS 212 1
Introduction to Accounting
Standard Costing
Session 31February 21,2002
04/19/23 A&MIS 212 2
Agenda for Today
Discuss problems assigned and other practice problems
Outline approaches to future problems.
04/19/23 A&MIS 212 3
Unit cost standards
Specification of unit cost standards:
Direct material sp × sq
Direct labor sr × sh
Variable OH sr × sq
Fixed OH sr × sq
Total unit std. cost
04/19/23 A&MIS 212 4
Unit costs incurred
Characterization of actual costs:
Direct material ap × aq
Direct labor ar × ah
Variable OH ar × aq
Fixed OH ar × aq
Total cost incurred per unit
04/19/23 A&MIS 212 5
Other terminology
Total quantities:
AQ represents total actual quantity
AQU represents the total quantity actually used or produced.
AQP represents the total quantity purchased
04/19/23 A&MIS 212 6
A budget view of variances
Flexible Flexible
Budget Budget
Actual (AQ input) (SQ input)
Cost sp × AQ sp × SQ
incurred
Actual cost - sp × AQ sp × AQ - sp × SQ
04/19/23 A&MIS 212 7
A Formula View of Variances
Total variance = actual – standard cost
Total variance = ap × AQ – sp × SQ
Price variance = (ap – sp) × AQ
Quantity variance = sp(AQ – SQ)
04/19/23 A&MIS 212 8
Algebra of Variances
Price variance + quantity variance
= total variance
= [(ap – sp) × AQ] + [sp × (AQ – SQ)]
= ap × AQ – sp × AQ + sp × AQ – sp × SQ
= [ap × AQ] – [sp × SQ], the total variance
04/19/23 A&MIS 212 9
Exercise 10-1: Material sp
Cost per 15-gal. Container $115.00
Less 2% discount 2.30
Net cash cost $112.70
Add freight cost ($130/100) 1.30
Total cost per container $114.00
Divide by quarts per container* 60.00
Standard cost per quart $ 1.90*15 gallons 4 quarts per gallon = 60 quarts
04/19/23 A&MIS 212 10
Exercise 10-1: Material sq
Content per bill of materials 7.6 qts.
Allowance for evaporation and
spoilage (7.6 qts./0.95 = 8 qts.) 0.4
Total quantity per bottle 8.0 qts.
Allowance for rejected bottles
(8.0 qts./40 saleable bottles) 0.2
Standard quantity per bottle 8.2 qts.
04/19/23 A&MIS 212 11
Standard Cost of Materials
Standard Standard Std. Cost
Item Quantity Price Per Bottle
Echol 8.2 qts. $1.90/qt. $15.58
04/19/23 A&MIS 212 12
E10-3: Quantities
• AQ (DM) = 20,000 lbs.• AQ (output) = 4,000 units• SQ (DM) = 4,000 units 4.6 lbs./unit
= 18,400 lbs.• SQ (DL) = 4,000 units 0.2 hrs.*/unit
= 800 labor hours
04/19/23 A&MIS 212 13
E10-3: Formula Method - DM
Materials price variance = AQ (ap – sp)
MPV = 20,000 lbs. ($2.35 – $2.50 per lb.)
= - $3,000 F
Materials quantity variance = sp (AQ – SQ)
MQV = $2.50/lb. (20,000 lbs. – 18,400 lbs.)
= $4,000 U
Total variance = - $3,000 + $4,000 = $1,000 U
04/19/23 A&MIS 212 14
E10-3: Flexible Budget Method
Flexible Flexible
Budget Budget
Actual (AQ input) (SQ input)
Cost incurred sp × AQ sp × SQ
20,000 lbs. 20,000 lbs. 18,400 lbs.
@ $2.35 = @ $2.50 = @ $2.50 =
$47,000 $50,000 $46,000
-$3,000 F $4,000 U
Price variance Quantity variance
04/19/23 A&MIS 212 15
E10-3: Formula Method - DL
Labor rate variance = AQ (ar– sr)
LRV = 750 hrs. ($13.90 – $12.00 per hr.)
= $1,425 U
Labor quantity variance = sr (AQ – SQ)
LQV= $12.00/hr. (750 – 800 hrs.)
= - $600 F
Total variance = $1,425 – $600 = $825 U
04/19/23 A&MIS 212 16
Flexible Budget Method - DL
Flexible Flexible
Budget Budget
Actual (AQ input) (SQ input)
Cost incurred sp × AQ sp × SQ
750 hrs. 750 hrs. 800 hrs.
@ $13.90 = @ $12.00 = @ $12.00 =
$10,425 $9,000 $9,600
$1,425 U - $600 F
Price variance Quantity variance