Standard costing operational performance measures

Role in the manufacturing world; Major criticisms levelled at standard costing variance analysis; Profound implications for the firm's competitive position. Cost accounting as a major breakthrough for managements' performance analysis efforts; Basic changes in corporate cost structures as Being held to account. Changes in accounting system products; Nature of traditional accounting departments; Importance of making decisions based on cost.

Standard costing operational performance measures

Define standard costs and describe how managers use standard costs in the management cycle. Standard Costing — a budgetary control technique with three components: How does standard costing relate to the management cycle?

Planning — Standard costs are determined and help set goals for product costing in direct materials, labor and overhead. Executing — Standards are applied to the work being done.

Reviewing — The variance is computed using actual costs compared to the standards determined. Managers can identify specific problems within the business and make changes.

Identify the six elements of, and compute, a standard unit cost. The six elements of standard unit cost are: Direct materials price standard — estimated cost of a direct material in the next accounting period.

Chapter 8: Performance Measurement Using Standard Costing

Direct materials quantity standard — the amount of direct materials expected to be used. Direct labor time standard — expected time required to complete one unit of output. Direct labor rate standard — hourly direct labor costs expected for each job function. Standard variable manufacturing overhead rate — total budgeted variable moh costs divided by number of machine or labor hours.

Standard fixed manufacturing overhead rate — Budgeted fixed moh costs divided by normal capacity in terms of machine hours. Computing a standard unit cost Using the example provided in the book, we determine unit cost by computing material, labor, and overhead costs, then adding those results together.

Describe how to control costs through variance analysis. Variance analysis — computing the differences between standard and actual costs and the reasons for those differences. Compute and analyze direct materials variances.

Total direct materials cost variance — the difference between the standard and the actual cost of direct materials. For example, bottle manufacturing: Direct materials price variance — standard price minus actual price times the actual quantity purchased.

If these answers match up, the calculations were correct. Compute and analyze direct labor variances.

Total direct labor cost variance — standard direct labor costs minus the actual direct labor costs The method is similar to the direct materials variance except that labor rate and labor hours are used to find the variance. Direct labor rate variance — standard rate minus actual rate times actual labor hours worked.

Performance Management (PM)

Define and prepare a flexible budget. Flexible budget — a summary of expected costs for a range of activity levels. Also called a variable budget. A flexible budget is a chart that compares the budgeted costs to the actual costs for the period using direct materials, direct labor, and manufacturing overhead.

An example flexible budget from the book looks like the following:Chapter Standard Costs and Operating Performance Measures This chapter extends our study of management control by explaining how standard costs are used by managers to control costs.

It demonstrates how to compute direct materials, direct labor, and variable overhead variances. A Conceptual Framework for Managerial Costing Larry R. White, CMA, CFM, CGFM, CPA • Integrated cost/operational performance measures (e.g. cost variance, capacity measurement, process efficiency etc) Why a Conceptual Framework for Managerial Costing?

Developing Performance Standards While performance elements tell employees what they have to do, the standards tell them how well they have to do it. The first article in this series defined and reviewed the characteristics of critical, non-critical, and additional performance elements.

Chapter Standard Costing, Operational Performance Measures, and. the Balanced Scorecard MULTIPLE CHOICE QUESTIONS 1. A standard cost: A. is the "true" cost of a unit of production. What are Standard Costs?

A standard cost is a budget for a single unit of product.; Types of Standards; i. Ideal standards are standards based on perfect or ideal conditions. Also known as perfection do not allow for any poor quality raw materials, waste in the production process, machine breakdown, or other inefficiencies.

Standard costing operational performance measures

Standard Costing, Operational Performance Measures and the Balanced Scorecard (Chapter 10) Question 5 () Question 6 () Question 7 ().

Developing Standard Cost System