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Lecture Managerial accounting: Creating value in a dynamic business environment (10/e): Chapter 10 - Ronald W. Hilton, David E. Platt

Chapter 10, standard costing and analysis of direct costs. After completing this chapter, you should be able to: Describe the elements of a cost control system, describe two ways to set cost standards and distinguish between perfection and practical standards, compute and interpret the direct-material price and quantity variances and the direct-labor rate and efficiency variances,. | Standard Costing and Analysis of Direct Costs Chapter 10 McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 10: Standard Costing and Analysis of Direct Costs Managing Costs Standard cost Actual cost Comparison between standard and actual performance level Cost variance 10- A managerial accountant’s budgetary-control system has three parts. First, a predetermined or standard cost is set. In essence, a standard cost is a budget for the production of one unit of product or service. It serves as the benchmark in the budgetary-control system. When the firm produces more than one unit, the managerial accountant uses the standard unit cost to determine the budgeted cost of production or the total standard cost. Second, the managerial accountant measures the actual cost incurred in the production process. Third, the managerial accountant compares the actual . | Standard Costing and Analysis of Direct Costs Chapter 10 McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 10: Standard Costing and Analysis of Direct Costs Managing Costs Standard cost Actual cost Comparison between standard and actual performance level Cost variance 10- A managerial accountant’s budgetary-control system has three parts. First, a predetermined or standard cost is set. In essence, a standard cost is a budget for the production of one unit of product or service. It serves as the benchmark in the budgetary-control system. When the firm produces more than one unit, the managerial accountant uses the standard unit cost to determine the budgeted cost of production or the total standard cost. Second, the managerial accountant measures the actual cost incurred in the production process. Third, the managerial accountant compares the actual cost with the budgeted or standard cost. Any difference between the two is called a cost variance. Cost variances then are used in controlling costs. (LO1) Perfection versus Practical Standards: A Behavioral Issue Should we use practical standards or perfection standards? Practical standards should be set at levels that are currently attainable with reasonable and efficient effort. 10- Standards that are as tight as practical, but still are expected to be attained, are called practical (or attainable) standards. Such standards assume a production process that is as efficient as practical under normal operating conditions. Practical standards allow for such occurrences as occasional machine breakdowns and normal amounts of raw-material waste. (LO2) I agree. Perfection standards are unattainable and therefore discouraging to most employees. Perfection versus Practical Standards: A Behavioral Issue 10- Some managers believe that perfection standards motivate employees to achieve the