AFM102 Chapter Notes - Chapter 10: Six Sigma, Variable Cost, Cost Accounting

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ivoryworm200

18 Oct 2017

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Document Summary

> managing distribution costs: begins with production function, standard costs; standard represent specific elements of budgets e. g. dm< dl and moh: both planning and control function. Any differences that are deemed significant are brought to the attention of management as (cid:862)e(cid:454)(cid:272)eptio(cid:374)s(cid:863: variance analysis cycle: basic approach to identifying and solving problems. Emphasis: highlight problems, finding root causes, taking corrective action improve operations. Labour rate variance: materials price variance, overhead spending variance, variances computed the same way. Standard direct labour cost per unit = standard price per unit x standard quantity per unit. Inferior quality of materials: faulty machines, untrained workers, poor supervision, responsibility of production department, other times, purchasing department for unfavourable materials quantity variance. Labour rate variance a closer look: labour rate variance: a measure of the difference between the actual hourly labour rate and the standard rate, multiplied by the number of hours worked during the period.

Related Questions

Hickory Furniture Company manufactures unfinished oak furniture.Hickory uses a A detailed estimate of what a product shouldcost.standard cost system. The direct labor, direct materials, andfactory overhead Performance goals, often relating to how much aproduct should cost.standards for an unfinished dining room tableare as follows:

Direct labor:	standard rate	$21 per hr.
	standard time per unit	3 hrs.
Direct materials (oak):	standard price	$10 per bd. ft.
	standard quantity	20 bd. ft.
Variable factory overhead:	standard rate	$2.4 per direct labor hr.
Fixed factory overhead:	standard rate	$0.8 per direct labor hr.

a. Determine the standard cost per dining roomtable. If required, round your answer to two decimal places.
$per table

b. A Accounting systems that use standards foreach element of manufacturing cost entering into the finishedproduct.standard cost system provides Hickory Furniture managementa cost control tool using the principle of management byexception

cost control

management by exception

. Using this principle, major < >majorminor costdeviations from standards can be investigated and corrected.

1. What is standard cost?
A. The total number of units times the budgeted amount expected
B. Any amount that appears on a budget
C. The total amount that appears on the budget for product costs
D. The amount management thinks should be incurred to produce a good or service

2. A standard cost is
A. the average cost in an industry.
B. a predetermined cost.
C. the historical cost of producing a product last year
D. a cost which is paid for a group of similar products.

3. The difference between a budget and a standard is that
A. a budget expresses what costs were, while a standard expresses what costs should be.
B. a budget expresses a total amount, while a standard expresses a unit amount.
C. a budget expresses management's plans, while a standard reflects what actually happened.
D. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

4. Standard costs may be used by
A. universities.
B. governmental agencies.
C. charitable organizations.
D. all of these answers are correct

5. The final decision as to what standard costs should be is the responsibility of
A. management.
B. the quality control engineer.
C. the purchasing agent.
D. the managerial accountants.

6. The most rigorous of all standards is the
A. normal standard.
B. realistic standard.
C. conceivable standard.
D. ideal standard.

7. An unfavorable materials quantity variance would occur if
A. more materials were purchased than were used.
B. actual pounds of materials used were greater than the standard pounds allowed
C. actual pounds of materials used were less than the standard pounds allowed
D. actual labor hours used were greater than the standard labor hours allowed

8. Which of the following statements is true?
A. Variances are the differences between total actual costs and total standard costs.
B. When actual costs exceed standard costs, the variance is favorable.
C. An unfavorable variance results when actual costs are decreasing but standards are not changed.
D. all of the above are true

10. Labor efficiency is measured by the
A. materials quantity variance.
B. labor quantity variance.
C. labor rate variance.
D. total labor variance.

tanpanda195

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.

	Standard Cost per Unit		Actual Cost per Unit
Direct materials:
Standard: 1.80 feet at $2.40 per foot	$	4.32
Actual: 1.75 feet at $2.60 per foot			$	4.55
Direct labor:
Standard: 0.90 hours at $14.00 per hour		12.60
Actual: 0.95 hours at $13.40 per hour				12.73
Variable overhead:
Standard: 0.90 hours at $3.00 per hour		2.70
Actual: 0.95 hours at $2.60 per hour				2.47
Total cost per unit	$	19.62	$	19.75
Excess of actual cost over standard cost per unit			$	0.13

The production superintendent was pleased when he saw this report and commented: âThis $0.13 excess cost is well within the 1 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."

Actual production for the month was 10,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

Required:

1. Compute the following variances for May:

a. Materials price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

b. Labor rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

c. Variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

2. How much of the $0.13 excess unit cost is traceable to each of the variances computed in (1) above. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to 2 decimal places.)

3. How much of the $0.13 excess unit cost is traceable to apparent inefficient use of labor time? (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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AFM102 Chapter Notes - Chapter 10: Six Sigma, Variable Cost, Cost Accounting

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