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Lecture Accounting for decision making and control (8/e): Chapter 12 - Jerold L. Zimmerman

Chapter 12 - Standard costs: Direct labor and materials. The main contents of the chapter consist of the following: Standard cost, setting and revising standards, target costing, purpose of variances, variance computation, direct labor variance, interpreting direct labor variance, direct materials variance - current use,. | Standard Costs: Direct Labor and Materials Chapter Twelve Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Connection to Other Chapters Chapter 12 shows how standard costs and variances are used for decision control. Chapter 4 discussed the decision control process. Chapter 6 showed how budgets are used in decision control. 12- Standard Cost Definition: The expected cost that is reasonably required to achieve a given objective under specified conditions. Used for Decision Management: Standards can be better predictors of future costs than actual past costs. Can be used in product pricing, bidding, and outsourcing decisions. Used for Decision Control: Set performance expectations or benchmarks for the costs of products, processes, or sub-components. Variances from standards get attention of managers. 12- Setting and Revising Standards Setting standards depends on specialized knowledge. Price standards from economic forecasts Quantity standards from engineering studies Choosing between tight and loose standards Tight standards motivate higher performance (decision control). Loose standards allow more discretion (decision management). Standards are usually set once a year. Frequent revision would reduce incentives to control costs. 12- Target Costing Target costing is a technique used for new product planning. 1. Market planners begin with selling price required to achieve a desired market share. 2. Selling price Desired profit = Total target cost 3. Assign portion of total target costs to marketing, engineering, and manufacturing departments. 4. Redesign product and techniques to achieve target. 12- Purpose of Variances Variances measure the difference between actual and standard costs. Favorable (F) variance, if actual standard Decision control Variances alert managers to deviations from plan. Performance rewards may be based on minimizing variances. 12- | Standard Costs: Direct Labor and Materials Chapter Twelve Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Connection to Other Chapters Chapter 12 shows how standard costs and variances are used for decision control. Chapter 4 discussed the decision control process. Chapter 6 showed how budgets are used in decision control. 12- Standard Cost Definition: The expected cost that is reasonably required to achieve a given objective under specified conditions. Used for Decision Management: Standards can be better predictors of future costs than actual past costs. Can be used in product pricing, bidding, and outsourcing decisions. Used for Decision Control: Set performance expectations or benchmarks for the costs of products, processes, or sub-components. Variances from standards get attention of managers. 12- Setting and Revising Standards Setting standards depends on specialized knowledge. Price standards from economic forecasts Quantity .