Lecture Management accounting: Information for creating and managing value (4/e) - Chapter 10 "Standard costs for control: direct material and direct labour". Learning objectives of this chapter include: Controlling costs, setting standards, investigating significant variances and taking corrective actions,.and another contents. | Chapter 10 Standard costs for control: direct material and direct labour 10- Controlling costs Businesses are in control when operations proceed to plan and objectives are achieved Control systems provide regular information to assist in control, which is an essential part of effective resource management Necessary requirements for control A predetermined or standard performance level A measure of actual performance; and A comparison between standard performance and actual performance continued 10- 10- Controlling costs Standard costing is a part of the budgetary control system A predetermined or standard cost is developed A standard cost is a budgeted cost of one unit of product Includes cost of material, labour and overhead The actual cost incurred in the product process is measured The actual cost is compared to the standard cost to form a cost variance continued 10- Controlling costs Standard cost variances are used to evaluate actual performance and control costs Standard costs can be developed for direct material, direct labour and overheads When cost variances are significant, the cause of the variance must be investigated May result in operations being changed to bring cost back in line with standards Management may reconsider whether the standard costs are appropriate benchmarks 10- Setting standards A variety of methods may be used to set cost standards Analysis of historical data Can provide a good basis for predicting future costs May need to be adjusted to reflect expected movements in price levels or technological changes in the product process Must be used with care as changes can make those costs irrelevant, and can include inefficiencies of the past continued 10- Setting standards Engineering methods Rather than what it cost in the past, the focus is on what it should cost in the future Need to determine how much material should be required and how much direct labour should be used in the production process Time and motion | Chapter 10 Standard costs for control: direct material and direct labour 10- Controlling costs Businesses are in control when operations proceed to plan and objectives are achieved Control systems provide regular information to assist in control, which is an essential part of effective resource management Necessary requirements for control A predetermined or standard performance level A measure of actual performance; and A comparison between standard performance and actual performance continued 10- 10- Controlling costs Standard costing is a part of the budgetary control system A predetermined or standard cost is developed A standard cost is a budgeted cost of one unit of product Includes cost of material, labour and overhead The actual cost incurred in the product process is measured The actual cost is compared to the standard cost to form a cost variance continued 10- Controlling costs Standard cost variances are used to evaluate actual performance and control .
