1. Chapter 9 Standard Costing: A Functional-Based Control Approach
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2. Study Objectives
Describe how unit input standards are developed, and explain why standard costing systems are adopted.
Explain the purpose of a standard cost sheet.
Compute and journalize the direct materials and direct labor variances, and explain how they are used for control.
Compute overhead variances three different ways, and explain overhead accounting.
Calculate mix and yield variances for direct materials and direct labor.

3. Developing Unit Input Standards1.
Unit standard cost is the product of standard price and standard quantity
Quantity standards specify how much of the input should be used per unit of output
Price standards specify how much should be paid for the quantity of the input to be used

4. Developing Unit Input Standards1.
Ideal standards demand maximum efficiency and can be achieved only if everything operates perfectly.
Currently attainable standards can be achieved under efficient operating conditions.
Kaizen standards reflect a planned improvement and are a type of currently attainable standard.

5. Developing Unit Input Standards1.
Usage of standard costing systems
Cost management
Planning and control
Decision making and product costing

6. Developing Unit Input Standards1.

7. Standard Cost Sheets 2.

8. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Total budget variance = (AP  AQ) – (SP  SQ)

9. Variance Analysis and Accounting: Direct Materials and Direct Labor3.

10. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Accounting for the Direct Materials Price and Usage Variances

11. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Direct materials price variances can be computed at the point
when the direct materials are issued into production OR
when the materials are purchased
This method would require AQ to be defined as the actual quantity purchased, rather than actual quantity used) .

12. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Direct materials usage variances should be computed as direct materials are issued into production.

13. Variance Analysis and Accounting: Direct Materials and Direct Labor3.

14. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Accounting for the Direct Labor Rate and Efficiency Variances

15. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Investigating direct materials and labor variances
Because random variations around the standard are expected, management should establish an acceptable range of performance.
The acceptable range is the standard, plus or minus an allowable deviation.
The upper control limit is the standard plus the allowable deviation
The lower control limit is the standard minus the allowable deviation.

16. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Disposition of Direct Materials and Direct Labor Variances Immaterial

17. Variance Analysis and Accounting: Direct Materials and Direct Labor3.
Disposition of Direct Materials and Direct Labor Variances Material

18. Variance Analysis: Overhead Costs4.

19. Variance Analysis: Overhead Costs4.

20. Variance Analysis: Overhead Costs4.

21. Variance Analysis: Overhead Costs4.

22. Variance Analysis: Overhead Costs4.

23. Variance Analysis: Overhead Costs4.

24. Variance Analysis: Overhead Costs4.
Accounting for Overhead Variances

25. Variance Analysis: Overhead Costs4.
Accounting for Overhead Variances (continued)

26. Variance Analysis: Overhead Costs4.

27. Variance Analysis: Overhead Costs4.

28. Mix and Yield Variances: Materials and Labor5.
Standard Mix Information: Direct Materials
Yield: 120 lbs.
Yield ratio: 0.75 (120 / 160)
Standard cost of yield (SPy): $0.80 per pound ($96 / 120 pounds of yield)

29. Mix and Yield Variances: Materials and Labor5.
Malcom Nut Company produces a batch of 1,600 pounds and produces the following actual results:

30. Mix and Yield Variances: Materials and Labor5.
Mix Variance = Σ(AQi – SMi)SPi

31. Mix and Yield Variances: Materials and Labor5.
Direct Materials Yield Variance
Yield variance = (Standard yield – Actual yield) Spy
Standard yield = Yield ratio × Total actual inputs
Yield variance = (1,200 – 1,300)$0.80
= $80 F

32. Mix and Yield Variances: Materials and Labor5.
Standard Mix Information: Direct Labor
Yield: 120 lbs.
Yield ratio: 24 or 2400% (120 / 5)
Standard cost of yield (SPy): $0.45 per pound ($54 / 120 pounds of yield)

33. Mix and Yield Variances: Materials and Labor
*uses 50 hours as the base

34. Mix and Yield Variances: Materials and Labor
Direct Labor Yield Variance
Yield variance = (Standard yield – Actual yield)Spy
= [(24 × 50) – 1,300]$0.45
= (1,200 – 1,300)$0.45
= $45 F

35. End Chapter 9
COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license.