ACC 406 Chapter Notes - Chapter 10: International Labor Standards

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ACC – Chapter 10 – Standard Costing: A Managerial Control Tool
To determine the unit standard cost for a particular input, two decisions must be made
1. The amount of input that should be used per unit of output (quantity decision)
2. The amount that should be paid for the quantity of the input used (pricing decision)
Quantity decision produces quantity standards and the pricing decision produces price
standards
Unit standard cost = price standard x quantity standard
Operating personnel determine the quality of the inputs required; personnel and purchasing
have the responsibility of acquiring the labour and materials quality requested at the lowest
price
Ideal standards demand maximum efficiency and can be achieved only if everything operates
perfectly
Currently attainable standards can be achieved under efficient operating conditions
Two reasons for adopting a standard cost system are to improve planning and control and to
facilitate product costing
An actual costing system uses actual direct material, direct labour and overhead
Normal costing system uses actual direct material and direct labour and budgeted overhead
Standard costing system uses standard direct material, direct labour and overhead
The standard cost sheet provides the production data needed to calculate the standard unit
cost, it also reveals the quantity of each input that should be used to produce one unit of
output
Standard quantity of materials allowed = unit quantity standard x actual output
Standard hours allowed = unit labour standard x actual output
Total variance = actual cost – planned cost
Price (rate) variance – the difference between the actual and standard unit price of an input
multiplied by the number of inputs used (AP-SP)AQ
Usage (efficiency) variance – the difference between the actual and standard quantity of inputs
multiplied by the standard unit price of the input (AQ-SQ)SP
Unfavourable (u) variances occur whenever actual prices or actuals usage of inputs are greater
than standard prices or standard usage
Favourable (F) variances – the opposite
The total variance for materials measures the difference between the actual costs of materials
and their budgeted costs for the actual level of activity
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