2. STANDARD COSTING Setting Standard and Analyzing Variances Pertemuan 3, 4 dan 5 Matakuliah: > Tahun: >

3. Bina Nusantara University 3 LEARNING OBJECTIVE Define Standard Cost and explain how standard are used. Explain how standard are set. Compute Standard Cost of actual or equivalent unit produced. Compute Standard Cost variances for Materials, Labor and Factory Overhead (FOH). Define Standard Cost variances and state how their causes can be determined.

4. Bina Nusantara University 4 DEFINITION Standard Cost is the predetermined cost of manufacturing a single unit or a specific quantity of during a specific period. Standard Cost is the planned cost of product under current or anticipated operating conditions. Component : physical standard and price standard A Standard is like a norm.

5. Bina Nusantara University 5 USEFULNESS of Standard Cost Establishing budgets Controlling costs by motivating employees and measuring operating efficiencies. Simplifying costing procedures and expediting cost reports. Assigning costs to materials, work in process, and finished goods inventories. Establishing contract bids and setting sales prices.

6. Bina Nusantara University 6 SETTING Standards Calculating a standard cost requires physical standards. Two types of physical standards are basic and current. Basic standard = as a yardstick, expected versus actual Current Standards are of three types : Expected Actual Standard. Normal Standard. Theoretical Standard.

7. Bina Nusantara University 7 SETTING Standard Material and Labor standards generally are based on normal, current condition, allowing for expected changes in prices and reflecting desire efficiency. Overhead standards actually are based on normal operating conditions, normal volume, and desired efficiency.

8. Bina Nusantara University 8 The SUCCESS of Standard Depend on the reliability, accuracy, and acceptance of the standards. Depend on human behavior. Must be realistic, can be achieved. Can increase employee motivation to work harder. Standards usually are computed for a 6- or 12 month period, although a longer period sometime is used.

9. Bina Nusantara University 9 STANDARD COST CARD Once standards are set, a standard cost card should be prepared for each product, showing the itemized cost of each kind of materials and component part, labor operation, and overhead cost for the product. A master standard cost card can be a paper document or electronic record. Either way, the master standard cost card for each product should be supported by individual records that indicated how the standard were determined.

10. Bina Nusantara University 10 DETERMINING Standard Cost Setting Material Standard Cost = Price Standard x Quantity Standard Price Standard = Price Purchases + Freight + Receiving Handling – Purchase Discount Quantity Standard = Material Requirement + Allowance for waste and spoilage + Allowance for rejects.

11. Bina Nusantara University 11 DETERMINING Standard Cost Setting Labor Standard Cost = Rate Standard x Direct Labor Hour Standard Rate Standard = Basic Wage Rate + Employee Taxes (10%x Basic) + Fringe Benefit (30% x Basic) DLH Standard = Basic Labor Time + Allowance for Breaks and Personal Needs + Allowance for cleanup and machine downtime + Allowance for reject.

12. Bina Nusantara University 12 DETERMINING Standard Cost Variance Differences between Standard Cost to Actual Cost is named as variance. Two Standards are developed for direct materials costs- a material price standard and a material quantity or usage standard. Because carrying inventory is costly, inventory buildup also can be reported as an unfavorable variance and inventory reduction as a favorable variance.

13. Bina Nusantara University 13 MATERIAL STANDARDS AND VARIANCES Material Purchase Price Variances = (Actual Price/unit-Standard Price/unit) x Actual Quantity Purchase (AQP). Material Price Usage Variances = (Actual Price/unit-Standard Price/unit) x Actual Quantity Used (AQU) Material Inventory Variances = (AQP-AQU) x Standard Price/unit

14. Bina Nusantara University 14 LABOR STANDARDS AND VARIANCES Labor Rate Variance = (Actual Rate/hour-Standard Rate/hour) x Actual Hours Worked (AHW). Labor Efficiency Variances = (AHW-SHA) x Standard Rate per hour

15. Bina Nusantara University 15 FOH Standards and Variances Standard FOH Rate = Total FOH/Direct Labor Hours Variable FOH Rate = Total Variable FOH/Direct Labor Hours Fixed FOH Rate = Total Fixed FOH/Direct Labor Hours

16. Bina Nusantara University 16 Two-Variance Method Controllable Variance = Actual FOH – [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH] Volume Variance = [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH] – (Standard Hours x Standard FOH Rate)

17. Bina Nusantara University 17 Three-Variance Method Spending Variance = Actual FOH – [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] Variable Efficiency Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] - [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH]. Volume Variance = [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH] – (Standard Hours x Standard FOH Rate).

18. Bina Nusantara University 18 Mix Variance Mix Variance is a variance representing the differences between the standard cost of formula materials and the standard cost the material actually used can be calculated. Mix Variance is the result of mixing basic materials in a ratio that differs from standard material specifications.

19. Bina Nusantara University 19 Yield Variance Yield Variance as the amount of product manufactured from a given amount of materials. Yield Variance is the result of obtaining a yield different from what would be expected from actual input.

20. Bina Nusantara University 20 CAUSES of Variances Material Variance : purchasing uncertainly, fortunate buy, unexpected inflation, an excess or shortage of quantity available in the market, etc. Labor variance : inefficiency labor, pilferage, or theft, badly worn or new machine, etc. FOH Variance : production inefficiency, capacity problem, etc.

21. Bina Nusantara University 21 Alternative Three-Variance Method Spending Variance = Actual FOH – [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] Idle Capacity Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] – [Actual Hours x FOH rate]. Efficiency Variable = [Actual Hours x FOH rate] – [Standard Hours x FOH Rate].

22. Bina Nusantara University 22 Four-Variance Method Spending Variance = Actual FOH – [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] Variable Efficiency Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] - [(Standard Hours x Variable FOH Rate) + Budgeted Fixed FOH].

23. Bina Nusantara University 23 Four-Variance Method Fixed Efficiency Variance = [Actual Hours Worked – Standard Hours] x Fixed FOH Rate. Idle Capacity Variance = [( Actual Hours x Variable FOH Rate) + Budgeted Fixed FOH] – [Actual Hours x FOH rate].

24. Bina Nusantara University 24 CONCLUSION Setting Standards and how to use standards. Computed Variance and Analyzing Variances. Variance : Material, Labor and FOH Mix and Yield Variance Causes of Variance, and control to Variance