HANSEN

1
Cost ManagementACCOUNTING AND CONTROL

• HANSEN MOWEN

2
Standard Costing A Functional-Based Control
Approach

3
Developing Unit Input Standards
Price standards specify how much should be paid
for the quantity of the input to be used.
Quantity standards specify how much of the input
should be used per unit of output.
Unit standard cost is the product of these two
standards Standard price ? Standard Quantity
(SP ? SP)
4
Developing Unit Input Standards

• 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 Standards

• Usage of Standard Costing Systems
• Cost Management
• Planning and Control
• Decision Making and Product Costing

6
Developing Unit Input Standards
Cost Assignment Approaches
7
Standard Cost Sheets
Standard Cost Sheet for Deluxe Strawberry Frozen
Yogurt
8
Variance Analysis and AccountingDirect
Materials and Direct Labor
Total budget variance (AP ? AQ) (SP ? SQ)
9
Variance Analysis and AccountingDirect
Materials and Direct Labor
Price and Usage Variances Direct Materials
MPV (AP SP)AQ
MUV (AQ SQ)SP
10
Variance Analysis and AccountingDirect
Materials and Direct Labor
Accounting for the Direct Materials Price and
Usage Variances
11
Variance Analysis and AccountingDirect
Materials and Direct Labor

• 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 AccountingDirect
Materials and Direct Labor
Direct materials usage variances should be
computed as direct materials are issued into
production.
13
Variance Analysis and AccountingDirect
Materials and Direct Labor
Rate and Efficiency Variances Direct Labor
LRV (AR SR)AH
LRV (AR SR)AH
14
Variance Analysis and AccountingDirect
Materials and Direct Labor
Accounting for the Direct Labor Rate and
Efficiency Variances
15
Variance Analysis and AccountingDirect
Materials and Direct Labor
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, and the
lower control limit is the standard minus the
allowable deviation.
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Variance Analysis and AccountingDirect
Materials and Direct Labor
Disposition of Direct Materials and Direct Labor
Variances - Immaterial
17
Variance Analysis and AccountingDirect
Materials and Direct Labor
Disposition of Direct Materials and Direct Labor
Variances - Material
18
Variance Analysis Overhead Costs
Variable Overhead Analysis
VOHSP (AVOR SVOR)AH
VOHEV (AH SH)SVOR
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Variance Analysis Overhead Costs
Variable Overhead Spending Variance by Item
20
Variance Analysis Overhead Costs
Variable Overhead Spending and Efficiency
Variance by Item
aPer direct labor hour. bSpending variance
Actual costs - Budget for actual
hours. cEfficiency variance Budget for actual
hours - Budget for standard hours.
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Variance Analysis Overhead Costs
Fixed Overhead Analysis
FOHSP AFOH BFOH
FOHVV SFOHR ? SH(D) SH
22
Variance Analysis Overhead Costs
23
Variance Analysis Overhead Costs
Graph of Fixed Overhead Variances
24
Variance Analysis Overhead Costs
Accounting for Overhead Variances
25
Variance Analysis Overhead Costs
Accounting for Overhead Variances (continued)
26
Variance Analysis Overhead Costs
Two-Variance Analysis Helado Company
27
Variance Analysis Overhead Costs
Three-Variance Analysis Helado Company
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Mix and Yield VariancesMaterials and Labor
Standard Mix Information Direct Materials
Direct Material Mix Mix Proportion SP
Standard Cost
Peanuts 128 lbs. 0.80 0.50 64 Almonds 32
lbs. 0.20 1.00 32 Total 160 lbs. 96
Yield 120 lbs. Yield ratio 0.75
(1.20/160) Standard cost of yield (SP) 0.80
per pound (96/120 pounds of yield)
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Mix and Yield VariancesMaterials and Labor
Malcom Nut Company produces a batch of 1,600
pounds and produces the following actual results
Direct Material Actual Mix
Percentages
Peanuts 1,120 lbs. 70 Almonds 480
30 Total 1,600 lbs. 100 Yield 1,300 lbs. 81.3
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Mix and Yield VariancesMaterials and Labor
Mix Variance S(AQi SMi)SPi
Direct Material AQ SM AQ
SM SP (AQ SM)SP
Peanuts 1,120 1,280 -160 0.50 -80 Almonds 480 3
20 160 1.00 60 Mix variance -80 U
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Mix and Yield VariancesMaterials and Labor
Direct Materials Yield Variance
Yield variance (Standard yield Actual yield)
SPy
Standard yield Yield ratio x Total actual inputs
Yield variance (1,200 1,300)0.80
80 F
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Mix and Yield VariancesMaterials and Labor
Standard Mix Information

• Labor Type Mix Mix Proportion
  SP Standard Cost
• Shelling 3 hrs. 0.60 8.00 24
• Mixing 2 hrs. 0.40 15.00 30
• Total 5 hrs. 54
• Yield 120 lbs.
• Yield ratio 24 (120/5), or 2,400
• Standard cost of yield (SPy ) 0.45 per pound
  (54/120 pounds of yield)

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Mix and Yield VariancesMaterials and Labor
Direct Labor Type
Actual
Mix Percentages

• Shelling 20 hrs. 40
• Mixing 30 hrs. 60
• Total 50 hrs. 100
• Yield 1,300 lbs. 2,600
• Uses 50 hours as the base.

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Mix and Yield VariancesMaterials and Labor
Direct Labor Mix Variance

• Direct Labor Type AH SM AH SM
  SP (AH SM)/SP
• Shelling 20 30 -10 8.00 -80
• Mixing 30 20 10 15.00 150
• Direct Labor mix variance -70 U

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End of Chapter 9