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Ebook Managerial accounting (12th edition): Part 2

(BQ) Part 2 book "Managerial accounting" has contents: Standard costs and the balanced scorecard, flexible budgets and overhead analysis, segment reporting and decentralization, capital budgeting decisions, “How well am I doing?” statement of cash flows,.and other contents. | gar26703_ch10_417-473.indd Page 417 12/25/06 3:32:05 PM epg1 /Volumes/201/MHIY010/mhgar12/gar12ch10 CONFIRMING PAGES Chapter 10 Standard Costs and the Balanced Scorecard BU SIN E S S F O CU S Managing Materials and Labor Schneider Electric’s Oxford, Ohio, plant manufactures busways that transport electricity from its point of entry into a building to remote locations throughout the building. The plant’s managers pay close attention to direct material costs because they are more than half of the plant’s total manufacturing costs. To help control scrap rates for direct material inputs such as copper, steel, and aluminum, the accounting department prepares direct materials quantity variances. These variances compare the standard quantity of direct materials that should have been used to make a product (according to computations by the plant’s engineers) to the amount of direct materials that were actually used. Keeping a close eye on these differences helps to identify and deal with the causes of excessive scrap, such as an inadequately trained machine operator, poor quality raw material inputs, or a malfunctioning machine. Because direct labor is also a significant component of the plant’s total manufacturing costs, the management team daily monitors the direct labor efficiency variance. This variance compares the standard amount of labor time allowed to make a product to the actual amount of labor time used. When idle workers cause an unfavorable labor efficiency variance, managers temporarily move workers from departments with slack to departments with a backlog of work to be done. ■ Source: Author’s conversation with Doug Taylor, plant controller, Schneider Electric’s Oxford, Ohio, plant. Learning Objectives After studying Chapter 10, you should be able to: LO1 Explain how direct materials standards and direct labor standards are set. LO2 Compute the direct materials price and quantity variances and explain their significance. LO3 Compute the direct labor .