Kế toán, kiểm toán - Chapter 10: Standard costs for control: direct material and direct labour

Chapter 10Standard costs for control: Direct material and direct labour1Controlling costsBusinesses are in control when operations proceed to plan and objectives are achievedNecessary requirements for controlA predetermined or standard performance levelA measure of actual performance; andA comparison between standard performance and actual performance2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithControl systems:a thermostat3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithControlling costsStandard costing is a part of the budgetary control systemA predetermined or standard cost is developedA standard cost is a budget for the production of one unit of a product, either goods or servicesThe actual cost incurred is measuredcontinued4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithControlling costsThe actual cost is compared to the budgeted or standard cost, to form a standard cost varianceStandard cost variances are used to evaluate actual performance and control costsStandard costs can be developed for direct material, direct labour and overheads 5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsA variety of methods may be used to set cost standardsAnalysis of historical dataCan provide a good basis for predicting future costsMay need to be adjusted to reflect expected movements in price levels or technological changes into the product processMust be used with care as changes can make those costs irrelevant, and can include inefficiencies of the pastcontinued6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsEngineering methodsRather than what did it cost in the past, the focus is on what should it cost in the future?Need to determine how much material should be required and how much direct labour should be used in the production processTime and motion studies may be conducted to ascertain how long it should take for workers to perform each stepIn practice both historical cost analysis and engineering methods may be used in combinationcontinued7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsParticipation in setting standardsStandards should not be set by accountants alonePeople will usually be more committed to meeting standards and have greater confidence in their accuracy if they are allowed to participate in setting themAny manager who plays an integral part in an operation or process should participate in setting standards for that areacontinued8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsPerfection standards reflect minimum attainable costs under nearly perfect operation conditionsAssumes peak efficiency, the lowest material and labour prices, the use of the best quality materials, and no production disruptions due to power failures or machine breakdownscontinued9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsPerfection standardsMay motivate people to achieve the lowest cost possible, as the standard is theoretically attainable May discourage employees from workings hard as the standards are unlikely to be achievedMay encourage employees to sacrifice quality to achieve low costscontinued10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsPractical standards are the minimum attainable costs under normal operating conditions, with allowances made for downtime and wastageFactors in occasional machine breakdowns and normal amounts of raw material wastageMay encourage more positive and productive attitudes among employees compared to perfection standardsSome companies include allowances for idle time, material wastage or normal spoilage, which may encourage inefficiency and wasteOther companies build continuous improvements into standards to make them more demandingcontinued11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSetting standardsBenchmarking of costs may involveIdentifying companies that have the best cost performance, Assessing their level of costs, and Identifying the cost performance gap that needs to be closedCost standards may be formulated to achieve external performance standards over the medium to long term12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect material standardsStandard material quantity is the total amount of direct material required to produce one unit of productStandard material price is the total delivered cost of that material, less quantity discounts Based on ordering a certain quality of material in specific order quantities from a specified supplier13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect labour standardsStandard direct labour is the number of labour hours normally needed to manufacture one unit of productsStandard about rate is the total hourly cost of wages, including on-costsOn-costs are extra salary-related costs that all Australian companies have to pay, and usually treated as part of the cost of labour14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithStandard costs given actual output15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCalculating standard cost variances16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect material variancesDirect material price variancesThe effect on cost of purchasing at a price that is different from standard = PQ (AP – SP)Where PQ= quantity purchased AP= actual price SP= standard pricecontinued17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect material variancesSometimes the direct material price variance is calculated using the quantity of materials used in production (AQ) rather than the quantity of material purchased (PQ)continued18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect material variancesDirect material quantity varianceThe effect on cost of using a different quantity of material in production, compared with the standard quantity that should have been used for the actual production output = SP (AQ - SQ)Where SP= standard price AQ= actual quantity used SQ = standard quantity used, given actual output19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect labour variancesDirect labour rate varianceEffect on cost of paying a different labour rate, compared with standard = AH (AR - SR)Where AH= actual hours used AR= actual rate per hour SR= standard rate per hourcontinued20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect labour variancesDirect labour efficiency varianceEffect on cost of using a different number of direct labour hours, compared with the standard hours that should have been used for the actual production output = SR (AH-SH)Where AH= actual hours used SH= standard hours allowed given actual output SR= standard rate per hour21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithInvestigating significant variancesManagement by exceptionOnly reporting significant cost variancesSignificant variancesSize of variance Recurring variancesTrends Controllability continued22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithInvestigating significant variancesFavourable variances warrant similar investigation to unfavourable variancesInvestigating variances may includeTalking with managers and employees familiar with the operations to find causesWritten reports to explain significant variances and possible corrective actions23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithA statistical approach to variance investigationVariances may be caused by random fluctuations which may not require correctionStatistical control charts plot standard cost variances across time and compares them with a statistically determined critical value to highlight the variances which should be investigated24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosts and benefits of investigationCosts includeTime spent investigating the problemDisruption to the production process as the investigation is conductedCorrective actions Benefits includeReduced costs if cause of variance is eliminatedCauses of favourable variances may improve work practices25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithBehavioural impact of standard costingStandard costing can be used to evaluate the performance of employees and departmentsComparing individuals’ performance with standards or budgets is used to determine salary increases, bonuses and promotions. These can profoundly influence behaviour26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost control through assigning responsibilityCost control is accomplished through the efforts of individual managers and employees It is important that managers held responsible for achieving certain cost standardsCan control these outcomesAre involved in setting the standardscontinued27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost control through assigning responsibilityInteractions between variances may make it difficult to assign responsibility for particular variancesNot all favourable variances are desirableUnfavourable variances do not always indicate a problemSource of the variance may lie in a different area of the firm than where the variance is being reported28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithStandard costs for product costingStandard costing systemAll inventories are recorded at standard costVariances are closed off at the end of accounting periodTo cost of goods sold expense, orProrate between WIP, FG and COGS29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith