Kế toán, kiểm toán - Chapter 24: Flexible budgets and standard costs

Show revenues and expenses
that should have occurred at the
actual level of activity.

May be prepared for any activity
level in the relevant range.

Reveal variances due to good cost

control or lack of cost control.

Improve performance evaluation.

 

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Chapter 24FLEXIBLE BUDGETS AND STANDARD COSTSManagement uses budgets to monitor and control operations. Develop the budget from planned objectives. Compare actual with budget and analyze any differences. Take corrective and strategic actions. Revise objectives and prepare a new budget.BUDGETARY CONTROL AND REPORTINGImprove performance evaluation.May be prepared for any activity level in the relevant range.Show revenues and expenses that should have occurred at the actual level of activity. Reveal variances due to good costcontrol or lack of cost control.PURPOSE OF FLEXIBLE BUDGETSPREPARATION OF FLEXIBLE BUDGETS To a budget for different activity levels, we must know how costs behave with changes in activity levels.Total variable costs change in direct proportion to changes in activity.Total fixed costs remain unchanged within the relevant range. FixedVariableP 1Benchmarks for measuring performance.The expected level of performance.Based on carefully predetermined amounts.Used for planning materials, labor, and overhead requirements.Standard costs are STANDARD COSTSC 1EngineerManagerial AccountantIDENTIFYING STANDARD COSTSProduction ManagerHuman Resources ManagerC 1Ideal standards, that are based on perfection, are unattainable and discouraging to most employees.Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.SETTING STANDARD COSTSQuantity StandardsPrice StandardsDirect MaterialsTime StandardsRate StandardsDirect LaborActivity StandardsRate StandardsVariable OverheadC 1 A standard cost card might look like this:C 1SETTING STANDARD COSTSStandard Cost VariancesCOST VARIANCE COMPUTATIONQuantity VariancePrice VarianceThe difference between the actual price and the standard price.The difference between the actual quantity and the standard quantity.C 2Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceCOST VARIANCE COMPUTATIONStandard quantity is the quantity that should have been used for the actual good output. Standard price is the amount that should have been paid for the resources acquired.C 2 AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceCOST VARIANCE COMPUTATIONC 2 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard RateRate VarianceEfficiency Variance Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead spending variance efficiency variance AH(AR - SR) SR(AH - SH) AH = Actual Hours SR = Standard Rate AR = Actual Rate SH = Standard Hours LABOR COST VARIANCESP 2High skill, high rateLow skill, low rateUsing highly paid skilled workers to perform unskilled tasks results in an unfavorable rate variance.Production managers who make work assignments are generally responsible for rate variances.LABOR COST VARIANCESP 2Unfavorable Efficiency VarianceLABOR COST VARIANCESP 2 Recall that overhead costs are assigned to products and services using a predetermined overhead rate (POHR):Estimated total overhead costs Estimated activity POHR =Assigned Overhead = POHR × Standard ActivityOVERHEAD STANDARDS AND VARIANCESP 3Overhead RateContains a variable unit rate which stays constant at all levels of activity.Contains a fixed overhead rate which declines as activity level increases.Function of activity level chosen to determine rate.SETTING OVERHEAD STANDARDSFlexible budgets, showing budgeted amount of overhead for various levels of activity, are used to analyze overhead costs.P 3CONTROLLABLE AND VOLUME VARIANCESTotal Overhead Variance (OCV)Volume VarianceControllable VarianceOverheadcostvariance(OCV)Actual overheadincurred(AOI)Standardoverheadapplied(SOA)=–P 3END OF CHAPTER 24

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