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

Chapter 24FLEXIBLE BUDGETSAND STANDARD COSTSManagement usesbudgets to monitorand controloperations. Develop the budgetfrom planned objectives. Compareactual with budget andanalyze anydifferences. Take corrective andstrategic actions. Reviseobjectivesand preparea newbudget.BUDGETARY CONTROL AND REPORTINGImprove performance evaluation.May be prepared for any activity level in the relevant range.Show revenues and expensesthat should have occurred at theactual 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 changein direct proportion to changes in activity.Total fixed costs remainunchanged within therelevant range. FixedVariableP 1Benchmarks formeasuring performance.The expected levelof performance.Based on carefullypredetermined amounts.Used for planning materials, labor, and overhead requirements.Standard costs are STANDARD COSTSC 1EngineerManagerialAccountantIDENTIFYING STANDARD COSTSProductionManagerHumanResourcesManagerC 1Ideal standards, that are based on perfection, areunattainable and discouraging to most employees.Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.SETTING STANDARD COSTSQuantityStandardsPriceStandardsDirect MaterialsTimeStandardsRateStandardsDirectLaborActivityStandardsRateStandardsVariableOverheadC 1 A standard cost card might look like this:C 1SETTING STANDARD COSTSStandard Cost VariancesCOST VARIANCE COMPUTATIONQuantity VariancePrice VarianceThe difference betweenthe actual price and thestandard price.The difference betweenthe actual quantity andthe 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 toperform unskilled tasks results in anunfavorable rate variance.Production managers who make work assignmentsare generally responsible for rate variances.LABOR COST VARIANCESP 2UnfavorableEfficiencyVarianceLABOR COST VARIANCESP 2 Recall that overhead costs are assigned to products and services using a predetermined overhead rate (POHR):Estimated total overhead costsEstimated activity POHR =Assigned Overhead = POHR × Standard ActivityOVERHEAD STANDARDSAND VARIANCESP 3Overhead RateContains a variableunit rate which staysconstant at all levelsof activity.Contains a fixedoverhead rate whichdeclines as activitylevel increases.Function of activity levelchosen 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 ANDVOLUME VARIANCESTotal OverheadVariance (OCV)VolumeVarianceControllableVarianceOverheadcostvariance(OCV)Actualoverheadincurred(AOI)Standardoverheadapplied(SOA)=–P 3END OF CHAPTER 24