This chapter extends our study of management control by explaining how standard costs are used by managers to control costs. It demonstrates how to compute direct materials, direct labor, and variable overhead variances. The chapter also defines some nonfinancial performance measures that are frequently used by companies. | Standard Costs and Operating Performance Measures Chapter 11 Chapter 11: Standard Costs and Operating Performance Measures This chapter extends our study of management control by explaining how standard costs are used by managers to control costs. It demonstrates how to compute direct materials, direct labor, and variable overhead variances. The chapter also defines some nonfinancial performance measures that are frequently used by companies. Standard Costs Standards are benchmarks or “norms” for measuring performance. In managerial accounting, two types of standards are commonly used. Quantity standards specify how much of an input should be used to make a product or provide a service. Price standards specify how much should be paid for each unit of the input. Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies. A standard is a benchmark or “norm” for measuring performance. In managerial accounting, two types of standards are commonly . | Standard Costs and Operating Performance Measures Chapter 11 Chapter 11: Standard Costs and Operating Performance Measures This chapter extends our study of management control by explaining how standard costs are used by managers to control costs. It demonstrates how to compute direct materials, direct labor, and variable overhead variances. The chapter also defines some nonfinancial performance measures that are frequently used by companies. Standard Costs Standards are benchmarks or “norms” for measuring performance. In managerial accounting, two types of standards are commonly used. Quantity standards specify how much of an input should be used to make a product or provide a service. Price standards specify how much should be paid for each unit of the input. Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies. A standard is a benchmark or “norm” for measuring performance. In managerial accounting, two types of standards are commonly used by manufacturing, service, food and not-for-profit organizations: Quantity standards specify how much of an input should be used to make a product or provide a service. For example: Auto service centers like Firestone and Sears set labor time standards for the completion of work tasks. Fast-food outlets such as McDonald’s have exacting standards for the quantity of meat going into a sandwich. Price standards specify how much should be paid for each unit of the input. For example: Hospitals have standard costs for food, laundry, and other items. Home construction companies have standard labor costs that they apply to sub-contractors such as framers, roofers, and electricians. Manufacturing companies often have highly developed standard costing systems that establish quantity and price standards for each separate product’s material, labor and overhead inputs. These standards are listed on a standard cost card. Standard Costs Direct Material Deviations from standards deemed .
