AFM 102- final review.pdf

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Accounting & Financial Management
AFM 102
Robert Ducharme

SOS Final Exam Review Package AFM 102Managerial AccountingBy Radhika SikkaCourse AFM 102 thExam Date April 10 2012 Exam Time 900 am1100 amGarrison Chesley Carroll Webb and Libby Managerial Accounting Ninth ed McGrawHill Print Page 1 SOS Final Exam Review Package AFM 102Managerial Accounting CHAPTER 10 STANDARD COSTS AND OVERHEAD ANALYSISQuantitative measures of performance is a method to provide performance feedback which o Improves production process through understanding of what works and what does not o Helps sustain motivation and effortIt is important that managers provide low cost products of high quality to customers in order to prevent customer turnovero Raw materials and other related costs must be low as possible To control costs managers must look at standards o Direct material direct labour overhead Overhead costs are most difficult to control due to the variety of things included and fixed vs variable natureSTANDARD COSTSMANAGEMENT BY EXCEPTION Standards are considered to be the normbenchmark for measuring performanceo Relate to quantity in terms of how much input should be usedo Cost price standards specify how much should be paid for each unit of input If quantity or costs significantly deviate from expectations they should be further investigated and there should be corrective action management by exceptiono Must highlight problem and find the root rather than blaming Prepared standard cost performance reportanalyse variancesidentify questions receive explanationstake corrective actionsconduct next periods operationsSETTING STANDARD COSTSStandard setting done by those who must use inputspurchaseMust be careful that standards are set to prevent past mistakesWho Uses Standard CostsStandards related to materials labour and overhead are developed for each product Standard cost record shows standard quantities and costs of inputs requiredo Cost is calculated by pricestandard quantityIdeal vs Practical Standards Ideal standards o Attained under best circumstances with no breakdownsinterruptionso Require workers at 100 level although standards are unattainable motivate workers o Cannot be used in budgetsplans and lead to unrealistic planning Practical standardso tight but attainable allow for machine break down and employee rest periodso Variances from standards signal need for management attentiono Can be used in forecasting and planning as well as budgetingSetting Direct Materials StandardsStandard price per unit should reflect final delivered cost including shipping receiving o Includes specifics such as qualitytype discountsStandard quantity per unitshould reflect materials required and allowance for unavoidable waste o If allowances for waste spoilage and rejects are made it deters from Six Sigma if included must constantly try reducing allowances Standard costper unitstandard price per unitstandard quantity per unitGarrison Chesley Carroll Webb and Libby Managerial Accounting Ninth ed McGrawHill Print Page 2
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