managerial acounting.pptVIP

Managerial Accountingby James Jiambalvo Chapter 11: Standard Costs and Variance Analysis Slides Prepared by: Scott Peterson Northern State University Objectives Explain how standard costs are developed. Calculate and interpret variances for direct material. Calculate and interpret variances for direct labor. Calculate and interpret variances for manufacturing overhead. Calculate the financial impact of operating at more or less than planned capacity. Objectives (Continued) Discuss how the management by exception approach is applied to investigation of standard cost variances. Explain why a “favorable” variance may be unfavorable, how process improvements may lead to “unfavorable” variances, and why evaluation in terms of variances may lead to overproduction. Standard Costs Standard Costs and Budgets Development of Standard Costs Ideal Versus Attainable Standards Two schools of thought: Ideal standards (perfection standards): developed under the assumption that no obstacles to the production process will be encountered. Attainable Standards: developed under the assumption that there will be occasional problems in the production process. A General Approach To Variance Analysis Direct material: materials price and materials quantity variance. Direct labor: labor rate (price) and labor efficiency (quantity) variance. Overhead: overhead volume variance and controllable overhead variance. Material Variances Differences between standard and actual material costs: Material price variance. Material quantity variance. Material Price Variance Material price variance:(AP – SP) x AQp (AP) = actual price per unit of material. (SP) = standard price per unit of direct material. (AQp) = actual quantity of material purchased. Actual price standard price: unfavorable. Actual price standard price: favorable. Material Quantity Variance Material quantity variance: (AQu – SQ)SP (AQu) = actual quantity of material used. (SQ) = standard quantity of material allowed. (SP) = standard p