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Help to ensure that overall product quality is high while keeping costs under control. if imposed by the government they are called regulations. Internally, they could include those set on employees, for quality control of products, for costs. In accounting management they are predetermined unit costs, which the company will use as performance measures.

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Standard costs

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Both of these are predetermined costs, and both contribute to management planning. A ___________is a unit amount, while a __________ is a total amount.

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standard, budget

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The budgeted cost per unit of product. it is concerned with each individual cost component that makes up the entire budget. Inventories are reported at _____________ cost.

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standard

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1. Facilitate management planning. 2. Promote greater economy by making employees more cost conscious. 3. Useful in selling prices. 4. contribute to management control by providing basis for evaluation of cost control. 5. Useful in highlighting variances in management by exception. 6. Simplify costing of inventories and reduce clerical costs.

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Advantages of standard costs

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To be effective in controlling costs, standards need to be current and are under continuous review. When they are determined to not be a good indicator of performance they are revised. Examples of reasons to revise are changed wage rates resulting from a new union contract, a change in product specifications, or the implication of a new manufacturing method.

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standard revision

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This type of standard represents optimum levels of performance under perfect operating conditions.

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Ideal standard

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This type of standard represents efficient levels of performance that are attainable under expected operating conditions. Most companies use these standards. They should be rigorous but attainable.

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normal standards

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To establish standard cost of producing a product it is necessary to establish standards for each manufacturing cost element- _______________, _______________, and ___________________. The standard for each is derived from the standard price to be paid and the standard quantity to be used.

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Direct materials, Direct labor, Manufacturing Overhead.

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This is the cost per unit of direct materials that should be incurred. It is based on the purchasing departments best estimate of the cost of raw materials. It is frequently based on current purchase prices. it also includes an amount for related costs such as receiving. storing, and handling.

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Direct materials price standard

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This is the quantity of direct materials that should be purchased per unit of finished goods. It is expressed as a physical measure (lbs, barrels, feet). Quality and quantity of materials required are both considerations and the standard includes allowances for unavoidable waste and normal spoilage.

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Direct materials quantity standard

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Standard direct materials price x Standard direct materials quantity.

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Standard direct materials cost per unit

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Also called a rate standard, this standard is the rate per hour that should be incurred for direct labor. It is based on current wage rates, adjusted for anticipated changes such as cost of living.

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Direct labor price standard

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the time that should be required to make one unit of product; includes actual production time, rest periods and cleanup, setup and downtime.

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Direct labor quantity standard

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Standard direct labor price x standard direct labor hours.

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Standard direct labor cost per unit

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an overhead rate determined by dividing budgeted overhead costs by an expected standard activity index( like hours).

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standard predetermined overhead rate

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the average activity output that a company should experience over the long run.

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normal capacity

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predetermined overhead rate x the activity index quantity standard

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standard manufacturing overhead rate per unit

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this is the sum of the standard costs of direct materials, direct labor, and manufacturing overhead.

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total standard cost per unit

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a detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product.

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standard cost card

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the difference between total actual costs and total standard costs.

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variance

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when actual costs exceed standard costs the variance is _______________.

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unfavorable

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materials variance + labor variance + overhead variance =

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total variance

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Actual quantity x actual price - standard quantity x standard price =

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total materials variance

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actual quantity x actual price - actual quantity x standard price =

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materials price variance

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actual quantity x standard price - standard quantity x standard price =

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materials quantity variance

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When the ____________is used, a company computes the amounts using the formula for each cost element first and then computes the variance.

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matrix

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materials price variance usually begins in the ______________________.

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purchasing department

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Availability of quantity and cash discounts, the quality of the materials requested, and the delivery method used are all ________________________________________. The purchasing department is responsible for any variances, if within their scope of control.

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factors affecting price of raw materials

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labor price variance + labor quantity variance =

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total labor variance

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actual hours x actual rate - actual hours x standard rate =

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labor price variance

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actual hours x standard rate - standard hours x standard rate =

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labor quantity variance

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These are usually the result of two factors: 1. Paying workers different wages than expected and 2. Misallocation of workers. The production department is usually responsible for these variances.

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Labor price variances

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these relate to the efficiency of workers and is generally traced to the production department. Can be related to lack of training, worker fatigue, or faulty machinery.

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Labor quantity variances

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the difference between the actual overhead costs and overhead costs applied based on standard hours allowed for the amount of goods produced

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total overhead variance

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The time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit.

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standard hours allowed

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To find the total overhead variance in a standard costing system, we determine the overhead costs applied based on _____________________.

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standard hours allowed

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The overhead variance is generally analyzed through a price and a _____________________.

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quantity variance

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the name usually given to the price variance is the

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overhead controllable variance

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the name given to the quantity variance is referred to as the

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overhead volume variance

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over or under spending of cost items and insufficient use of overhead are both causes for a ___________________ variance. These are the responsibility of the production department.

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manufacturing overhead

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Variance reports facilitate the principle of "______________________"

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management by exception

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When analyzing variance reports top managers usually look for _____________________.

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significant variances

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In income statements prepared for management under a standard cost system, cost of good sold is stated at standard cost and the variances are ________________.

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disclosed seperately

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Sales Revenue - Cost of Goods Sold(at standard) = Gross profit at standard. Gross profit at standard - variances = Actual gross profit.

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Income statement

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A management report that measures four dimensions of performance: financial, internal operations, innovation and learning, and customer perspectives of the organization.

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balanced scorecard

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most traditional view of the company. Employs financial measures of performance used by most firms.

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financial perspective

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evaluates the company from the viewpoint of those people who buy its products or services. Compares the company to competitors in terms of price, quality, product innovation, customer service and other dimensions.

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customer perspective

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evaluates the internal operating processes critical to success. All critical aspects of the value chain- including product development, production, delivery, and after sale services are all evaluated to ensure that the company is operating effectively and efficiently.

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internal process perspective

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evaluates how well the company develops and retains its employees.

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learning and growth perspective

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The ___________________________are normally set first, and then the objectives are set in the other perspectives in order to accomplish the financial goals.

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financial perspective objectives

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1. Employs both financial and non financial measures. 2. Creates linkages so that high level corporate goals can be communicated down to lower levels. 3. Provides measurable objectives for non financial measures such as product quantity. 4. Ensures an inappropriate amount of weight will not be placed on any single goal.

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4 qualities of a balanced scorecard

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