1. Standard costing variance analysis kaizen costing
Chapter 16
Standard costing variance analysis kaizen costing

2. Standards Predetermined amount for what should happen
Quantity standard
Quantity of the resource that should be consumed
Cost standard
Cost per unit that should be paid for the resource
Provides a context for evaluating actual amounts

3. Standards Advantages Provides a context for evaluating actual amounts
Standard costs do not fluctuate
Simplified accounting
Less expensive than actual costing

4. Setting standards Quantity standards How much should be consumed?
Product/process analysis
Allowance for normal, unavoidable inefficiencies
Historical data
Is it still relevant?

5. Setting standards Cost standards
What should a unit of the resource cost?
Normal quality
Normal quantity
Regular supplier
Same shipping method
Etc.

6. Setting standards Other issues What is normal?
Practical or perfection?
Who determines the standard?
Who is most familiar with the usage?
Who is most familiar with the cost?

7. Variance analysis Comparison of standard to actual results Quantity
Material quantity variance
Labor efficiency variance
Cost
Material cost variance
Labor rate variance

8. Variance analysis Quantity variance formula Cost variance formula
Standard price * (actual – standard quantity)
Notice what is in the parentheses
Cost variance formula
Actual quantity * (actual – standard cost)
I pay for the actual amount I purchase

9. Variance analysis Favorable or unfavorable?
Favorable if actual is less than standard
Implies efficiency or cost savings
Unfavorable if actual is greater than standard
Implies waste or excessive cost
Does not mean “good” or “bad”
Any variance is a deviation from what was supposed to happen

10. Variance analysis Responsibility Why did the variance occur?
Usage issue
Efficiency or inefficiency
Quality issue
Different material or labor mix
Quantity issue
Discount or surcharge

11. Variance analysis

12. Variance analysis

13. Variance analysis

14. Variance analysis

15. Variance analysis Multiple substitutable inputs
Multiple labor skills, multiple materials
Quantity (efficiency) variances can be broken down further
Mix variance
Yield variance

16. * * Variance analysis Mix variance
Mix of inputs is different than standard
Difference between actual and standard proportions of the specific input
Total quantity of the resource class
Standard price of the specific input * *

17. * * Variance analysis Yield variance
Actual total quantity of inputs is different than standard
Difference between actual and standard quantity of the resource class
Standard input proportion of the specific resource
Standard price of the specific input * *

18. Variance analysis

19. Variance analysis

20. Variance analysis

21. Variance analysis

22. Variance analysis Now what? Investigation of variances Variance size
Cost/benefit of analysis
Offsetting variances
Controllability
Interactions and tradeoffs
Recurring variances

23. Variance analysis Criticisms Variances can be too aggregated
Work best in stable, mass production environment
Focus on cost minimization, not qualitative issues
Greater automation reduces variances
Standards are often relevant for only a short time

24. Standard cost accounting
Use of standard costs reduces period-to-period fluctuations
Standard costs are debited to inventory and CofGS accounts
Variance is the difference between the debit to inventory and the credit
Variances are closed to CofGS at end of period
Favorable variances decrease CoGS
Unfavorable variances increase CofGS

25. Kaizen costing Form of continuous improvement Process
Cost reduction goal is established
Actual costs are compared to goal
Actual cost achieved by year end becomes the base for next year’s reduction target