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ACCT 2230 Study Guide - Final Guide: Standard Cost Accounting, Unemployment Benefits, Variable Cost

Course Code
ACCT 2230
Alireza Talebi
Study Guide

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Chapter 10: Standard Costs and Overhead Analysis
Standard Costs: Management by Exception
a standard is a benchmark for measuring performance
quantity standards how much of an input should be used to make a unit of product or
provide a unit of service
cost (price) standards how much should be paid for each unit of input
Management by Exception: a system of management in which standards are set for various
operating activities that are then periodically compared to actual results
any differences that are deemed significant are brought to the attention of management as
variance analysis cycle basic approach to identifying and solving problems
o begin with preparing standard cost performance report
o analyze variances
o identify questions
o receive explanations
o take corrective actions
o conduct next period operations
Setting Standard Costs:
Who uses Standard Costs?
manufacturing, service, food and non-profit organizations all use standards to some
manufacturing companies often have highly developed standard costing systems relating
to materials, labour, and overhead
Standard Cost Record: a detailed listing of the standard amounts of materials, labour and
overhead that should go into a unit of product or service, multiplied by the standard price or rate
that has been set for each cost element
Ideal vs. Practical Standards:
Ideal Standards: standards that allow for no machine breakdowns or other interruptions and
that require peak efficiency at all times
Practical Standards: standards that allow for normal machine downtime and other work
interruptions and can be attained through reasonable, although highly efficient, efforts by the
average employee
Setting Direct Material Standards:
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standard price per unit: the price that should be paid for a single unit of materials, including
shipping, receiving and other such costs, net of any discounts allowed
standard quantity per unit: the amount of material that should be required to complete a single
unit of product, including allowances for normal waste, spoilage, and other inefficiencies
standard DM cost per unit = standard price per unit x standard quantity per unit
Setting Direct Labour Standards:
standard rate per hour: the labour rate that should be incurred per hour of labour time,
including Employment Insurance, employee benefits and other labour costs
standard hours per unit: the amount of labour time that should be required to complete a
single unit of product, including allowances for breaks, machine downtime, cleanup, rejects and
other normal inefficiencies
Standard DL cost per unit = standard rate per hour x standard hours per unit
Setting Variable Manufacturing Overhead Standards:
same as above… essentially
to find the total standard variable cost per unit, at up all the standard costs per units of
DM, DL and OH
Standards vs. Budgets:
standard is in unit amount, budget is in total amount
a standard can be viewed as a budgeted cost for one unit of product
General Model for Variance Analysis:
an important reason for separating standards into price and quantity is that different
managers are usually responsible for buying and for using inputs!
purchasing manager raw materials, responsible for price
production manager raw materials, responsible for quantity
Variances: the differences between standard prices sand quantities and actual prices and
Variance Analysis: the act of computing and interpreting variances general model for variance
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