ACC 406 Chapter Notes - Chapter 10: Standard Cost Accounting

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12 Nov 2012
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ACC406 - Chapter 10
Unit Standards
oMost operating managers recognize the need to control costs
Often means the difference between success and failure or
between above-average profits and lesser profits
oTo determine the unit standard cost for a particular input, 2 decisions
must be made:
1) The amount of input that should be used per unit of output
(the quantity decision)
2) The amount that should be paid for the quantity of the input
to be used (the pricing decision)
oQuantity Decision produces Quantity Standards
oPricing Decision produces Price Standards
Unit Standard Cost = Quantity Standard x Price Standard
How Standards Are Developed
oPrice standards are the joint responsibility of operations, purchasing,
personnel, and accounting
Operating personnel determine the quality of the inputs required
Personnel and Purchasing have the responsibility of acquiring
the labor and materials quality requested at the lowest price
Accounting is responsible for recording the price standards as
well as for preparing reports that compare actual performance
with the standard
Types of Standards
oIdeal Standards = Demand maximum efficiency and can be achieved
only if everything operates perfectly
oCurrently Attainable Standards = Can be achieved under efficient
operating conditions
Offers most behavioural benefits
Why Standard Cost Systems Are Adopted
oTwo reasons for adopting a standard cost system
Planning and Control
Standard costing systems enhance planning and control,
improve performance measurement
Unit standards are a fundamental requirement for a
flexible budgeting system
Budgetary control systems compare actual costs with
budgeted costs by comparing variances (difference
between actual and planned)
Product Costing
In a standard costing system, costs are assigned to
products using quantity and price standards for all three
manufacturing costs: Direct Materials, Direct Labor,
Overhead
In an actual costing system, it assigns the actual costs of
all three manufacturing inputs to products
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Document Summary

Acc406 - chapter 10: unit standards, most operating managers recognize the need to control costs. Often means the difference between success and failure or between above-average profits and lesser profits: to determine the unit standard cost for a particular input, 2 decisions must be made: 1) the amount of input that should be used per unit of output (the quantity decision) 2) the amount that should be paid for the quantity of the input to be used (the pricing decision: quantity decision produces quantity standards, pricing decision produces price standards. Unit standard cost = quantity standard x price standard: how standards are developed, price standards are the joint responsibility of operations, purchasing, personnel, and accounting. Operating personnel determine the quality of the inputs required. Personnel and purchasing have the responsibility of acquiring the labor and materials quality requested at the lowest price. Offers most behavioural benefits: why standard cost systems are adopted, two reasons for adopting a standard cost system.

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