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ACC406 - Chpater 10.docx

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ACC 406
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CHAPTER 10: STANDARD COSTING - MANAGERIAL CONTROL T OOL Unit Standards to determine unit standard cost for particular input, two decisions must be made: 1. Quantity Standard amount of input that SHOULD BE USED per unit of output 2. Price Standard amount that SHOULD BE PAID for the quantity of the input to be used Unit Standard = Quantity Standard x Price Standard How Standards Are Developed Historical Experience, engineering studies and input from operating personnel are three potential sources of quantitative standards.  Engineering studies determine most efficient way to operate and provide rigorous guidelines  Prince standards joint responsibility of operations, purchasing, personnel and accounting Type of Standards  Idle Standards demand maximum efficiency and can be achieved only if everything is perfect.  Currently attainable standard can be achieved under efficient operating conditions. Allowance made for normal breakdowns, interruptions, less than perfect skills. Planning and Control Unit standards are requirements for flexible budgeting systems, which is a key feature of meaningful planning and control system. Budgetary control systems compare actual costs with budgeted costs used variances  Standard costing system for operational control in manufacturing environments that use JIT and continuous improvement can produce dysfunctional behavior. (May encourage purchasing department to buy in large quantities in order to get discounts, causing increase in inventories)  Variances may still be computed and presented in reports to higher-level managers so financial dimensions can be monitored  87% of firms use a standard costing system. Product Costing costs are assigned to products using quantity and price standards for all manufacturing costs: direct materials, direct labor and overhead. Standard Product Costs using product costing, standard cost per unit is computed.  Standard Cost Sheet provides production data needed to calculate the standard unit cost. SQ = Unit Quantity Standard x Actual Output SH = Unit Labor Standard x Actual Output 1 C HAPTER 10: TANDARD COSTING - MANAGERIAL C ONTROL
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