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Lecture 10

SMG AC 222 Lecture 10: AC Notes Chapter 10

6 Pages

Course Code
SMG AC 222
Greg Sabin

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Chapter 10: Variance Analysis Standard Costs o Benchmarks, or norms, for measuring performance o Price and Quantity standards are determined separately: The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production o Price Standards Specify how much should be paid for each unit of the input Direct Materials Standards: Final, delivered cost of materials, net discounts Standard price per unit defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials Direct Labor Standards: Often a single rate is used that reflects the mix of wages earned Standard rate per hour defines the companys expected direct labor wage rate per hour, including employment taxes and fringe benefits. o Quality Standards Specify how much of an input should be used to make a product or provide a service Direct Materials Standards: Summarized in a Bill of Materials Standard quantity per unit defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies Direct Labor Standards Use time and motion studies for each labor operation o Generally, assume, tight but attainable labor standards rather than ideal Standard hours per unit defines the amount of direct labor hours that should be used to produce one unit of finished goods. 1
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