Managerial Accounting Chap 11 – Flashcards
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What are the two standards, or norms for measuring performance?
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-price- how much should be paid for each unit of output -quantity -how much an input should be used to make a product or service
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Management by exception
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a practice where deviations from standards deemed significant are brought to the attention of management
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Variance analysis cycle
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1. Prepare standard cost performance report 2. analyze variances 3. identify questions 4. receive explanations 5. take corrective actions 6. conduct next period's operations
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Who sets standard costs?
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accountants, engineers, purchasing agents, and production managers
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Setting standard costs
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ideal standards (requiring 100% efficiency) v. practical standards currently attainable with reasonable and efficient effort
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Where are the setting of direct material standards summarized?
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Bill of Materials
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Example of setting standards
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Six Sigma advocates have sought toeliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste andspoilage that are built into standardsshould be reduced over time.
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What can rate standards be used for Direct Labor?
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rate for a mix of wages earned
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What can time standards be used for for Direct Labor?
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Use time and motion studies for each labor operation.
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Price Variance
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(AQ × AP) - (AQ × SP)
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Quantity Variance
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(AQ × SP) - (SQ × SP)
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What can price variance be used to do?
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it can be used to identify purchasing problems
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Why is the standard price used to compute the quantity variance?
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The standard price is used to compute the quantity variance so that the production manager is not held responsible forthe purchasing manager's performance.
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Example of material variances-Production manager
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I am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it.
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Example of material variances: purchasing manager
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Your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances
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Why are production managers usually held accountable for labor variances?
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Because they influence the : .mix of skill levels assigned to work tasks .level of employee motivation .quality of production supervision .quality of training
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responsibility for labor variances- purchasing manager
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I think it took more time to process the materials because the Maintenance Department has poorly maintained your equipment.
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When to investigate variances?
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The large favorable variances that fall to unfavorable levels
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What are the advantages of standard costs?
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1. Management by exception (to know what deviates highly from standards so to investigate) 2. promotes economy and efficiency 3. simplified bookkeeping 4. enhances responsibility accounting
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Potential problems with standard costs
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1. Emphasizing standards may exclude other important objectives 2. Favorable variances maybe misinterpreted 3. standard cost reports may not be timely 4. Emphasis onnegative may impact morale. 5. Invalid assumptions about the relationship between labor cost and output. 6. Continuous improvement maybe more important than meeting standards.
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Which is the only value-added time?
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process time
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What is the throughout time (after product starts until goods are shipped)?
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Process Time + Inspection Time + Move Time + Queue Time
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What is the delivery cycle time?
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From the time order is received until goods are shipped
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Manufacturing cycle efficiency
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Value-added Time (aka process time)/ manufacturing cycle time
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Fixed overhead budget variance
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Actual fixed overhead - Budgeted fixed overhead
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Fixed overhead Volume variance
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Budgeted fixed overhead - fixed overhead applied to work in process Volume variance = FPOHR X (DH-SH)
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FPOHR x (DH -SH)
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Fixed portion of the predetermined overhead rate x (Denominator hours - standard hours allowed for actual output)
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Predetermined overhead rate
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Estimated total manufacturing overhead cost / Estimated total amount of the allocation base
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Overhead applied
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Predetermined overhead rate x Standard hours allowed for the actual output
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Graph showing overhead variances
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Slide 94
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Variable manufacturing overhead rate variance
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(AH × AR) - (AH × SR)
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The sum of the overhead variances equals
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the under- or overappliedoverhead cost for the period
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Variable manufacturing overhead efficiency variance
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(AH × SR) - (SH × SR)
