Chapter 11 Standard Costs and Operating Performance Measures.doc

Chapter 11 Standard Costs and Operating Performance Measures
Standard Costs and Operating Performance Measures
Chapter 11
Standard Costs
Standards are benchmarks or “norms” for measuring performance3>. In managerial accounting,
two types of standards monly used.
Quantity standards specify how much of an input should be used to make a product or provide a service.
Price standards specify how much should be paid for each unit of the input.
Examples: Firestone, Sears, McDonald’s, hospitals,
construction and panies.
Standard Costs
Direct Material
Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception.
Type of Product Cost
Amount
Direct Labor
Manufacturing Overhead
Standard
Variance Analysis Cycle
Prepare standard cost performance report

Analyze variances
Begin

Identify questions

Receive explanations
Take corrective actions
Conduct next period’s operations
Accountants, engineers, purchasing agents, and production bine efforts to set standards that encourage efficient future operations.
Setting Standard Costs
Setting Standard Costs
Should we use ideal standards that require employees to work at 100 percent peak efficiency?
Engineer
Managerial Accountant
I mend using practical standards that are currently attainable with reasonable and efficient effort.
Learning Objective 1
Explain how direct materials standards and direct labor standards are set.
Setting Direct Material Standards
Price Standards
Summarized in a Bill of Materials.
Final, delivered cost of materials, net of discounts.
Quantity Standards
Setting Standards
Six Sigma advocates have sought to eliminate all defects and waste, rather than continually build them into standards.
As a result allowances for waste and spoilage that are built into standards should be reduced over time.
Setting Direct Labor Standards
Rate Standards
Often a single rate is used that reflects the mix of