CH 16 Standard Costing, Variance Analysis, Kaizen Costing
CH 16 Standard Costing, Variance Analysis, Kaizen Costing
CH 16 Standard Costing, Variance Analysis, Kaizen Costing
Standards
Predetermined amount for what should happen
Quantity standard
Quantity of the resource that should be consumed
Cost standard
Cost per unit that should be paid for the resource
Standards
Advantages
Provides a context for evaluating actual amounts
Standard costs do not fluctuate Simplified accounting Less expensive than actual costing
Setting standards
Quantity standards
How much should be consumed?
Product/process analysis
Historical data
Is it still relevant?
Setting standards
Cost standards
What should a unit of the resource cost?
Normal quality
Normal quantity
Regular supplier Same shipping method
Etc.
Setting standards
Other issues
What is normal?
Practical or perfection?
Variance analysis
Comparison of standard to actual results
Quantity
Material quantity variance Labor efficiency variance
Cost
Material cost variance
Labor rate variance
Variance analysis
Quantity variance formula
Standard price * (actual standard quantity)
Notice what is in the parentheses
Variance analysis
Favorable or unfavorable?
Favorable if actual is less than standard
Implies efficiency or cost savings
Variance analysis
Responsibility
Why did the variance occur?
Usage issue
Efficiency or inefficiency
Quality issue Different material or labor mix
Quantity issue
Discount or surcharge
Variance analysis
Standard quantity per finished unit Standard cost per unit Actual output (finished units) Actual quantity used Actual cost per unit 12 $ 3.80 500 5,942 $ 3.75
Variance analysis
Quantity variance = $ 3.80 * ( 5,942 - ( Favorable 500 * 12 ))
= $ 220.40
Price variance
5,942 *(
$ 3.75 Favorable
3.80 )
= $ 297.10
Variance analysis
Standard hours per finished unit Standard rate per hour Actual output (finished units) Actual hours used Total actual labor cost 2 $ 12.40 500 1,085 $ 13,237
Variance analysis
Quantity variance = =
Price variance
= =
Variance analysis
Now what?
Investigation of variances
Variance size Cost/benefit of analysis Offsetting variances Controllability
Variance analysis
Criticisms
Variances can be too aggregated
Work best in stable, mass production environment
Kaizen costing
Form of continuous improvement
Process
Cost reduction goal is established