Albrecht 19.pdf - Marriott School

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950 Part 6 Control in a Management Accounting System
Step
1Develop
standard
costs.
Step
2Collect
actual
costs.
Step
3Compare
actual costs
to standard
costs and
identify
variances.
4Step
Journalize
actual costs
and standard
costs and
record the
variances.
Step
Report 5results
including
variances to
managers
responsible
for variances.
Step
6Analyze
causes of
significant
controllable
variances.
Step
7Take action
to eliminate
variances
or revise
standard
costs.
standard cost system
A cost-accumulation system
in which standard
costs are used as product
costs instead of actual
costs. The standard
costs are then adjusted to
actual costs when financial
reports are created.
This adjustment creates
variances that are reported
to management.
These steps describe a typical standard cost system. You are likely to find an
extensive standard cost system in most manufacturing firms, which usually have
standard costs for direct materials, direct labor, and manufacturing overhead.
However, many service and merchandising firms also use a standard cost system
to effectively manage critical costs in their organizations. Standard costs usually
are often stored in a computer. In Chapter 18 we created an operating budget for
Sunbird Boat Company. A critical part of creating this budget was establishing the
standard costs to produce a 15-foot fishing boat. These costs are reported in
Chapter 18, although they are spread across a number of budget schedules that
we created in that chapter. The management team and accountants at Sunbird
Boat Company can compile all of these standard cost data for 15-foot fishing boats.
The standard costs for Sunbird Boat Company are shown in Exhibit 3. We will use
the data in Exhibit 3 to illustrate how variances are calculated and analyzed.
CAUTION
All of the cost variances we compute in this
chapter are based on Sunbird’s standard cost
card. Be sure to return to Exhibit 3 to review
these standards as you work through the remainder
of this chapter. (Note that these are
the same standard costs and quantities we
used to build budgets for Sunbird Boat
Company in Chapter 18.)
Determining Standard Costs
In a manufacturing firm, standard costs are
determined on the basis of careful analysis
and the experience of many people, including
accountants, industrial engineers, purchasing
agents, and the managers of the
departments to be judged. Accountants play
an important role in developing standard
costs because they have the data needed to
determine how costs have changed in the
past in relation to levels of activity. This is not
an easy task. Changes in methods of production,
technology, worker efficiency, and plant
layout, for example, can affect the behavior
EXHIBIT 3
Standard Cost Card
Sunbird Boat Company
Standard Cost Card—15-Foot Fishing Boats
(1) (2) (3)
Standard Standard Standard
Quantity Price or Rate Cost (1) (2)
Inputs:
Direct materials:
Wood . . . . . . . . . . . . . . . . . . . . . . . . . 100 feet $10.00 $1,000.00
Fiberglass . . . . . . . . . . . . . . . . . . . . . . 40 feet 5.00 200.00
Direct labor . . . . . . . . . . . . . . . . . . . . . . 80 hours 20.00 1,600.00
Manufacturing overhead:
Variable . . . . . . . . . . . . . . . . . . . . . . . . 80 hours 7.50 600.00
Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . 80 hours 20.00 1,600.00
Total standard cost per boat . . . . . . . . . . $5,000.00