Page 1 Standard Costs and Variance Analysis Page 2 Standard Costs and Variance Analysis Objectives 1. Explain how standard costs are developed. 2. Calculate and interpret variances for direct material. 3. Calculate and interpret variances for direct labor. Page 3 Standard Costs and Variance Analysis Objectives 1. Explain how standard costs are developed. 2. Calculate and interpret variances for direct material. 3. Calculate and interpret variances for direct labor. Standard Costs Standard cost refers to expected costs under anticipated conditions. • Standard cost systems allow for comparison of standard versus actual costs. • Differences are referred to as standard cost variances. • Variances should be investigated if significant. Standard Costing: Process of establishing the standard cost Page 4 Standard Costs and Variance Analysis Objectives 1. Explain how standard costs are developed. 2. Calculate and interpret variances for direct material. 3. Calculate and interpret variances for direct labor. Standard Costs Standard cost refers to expected costs under anticipated conditions. • Standard cost systems allow for comparison of standard versus actual costs. • Differences are referred to as standard cost variances. • Variances should be investigated if significant. Standard Costing: Process of establishing the standard cost Development of Standard Costs 1. Standard costs are developed in a variety of ways: a. Specified by formulas. b. Developed from price lists provided by suppliers. c. Determined by time studies conducted by industrial engineers. d. Developed from analyses of past data. Page 5 Standard Costs and Variance Analysis Objectives 1. Explain how standard costs are developed. 2. Calculate and interpret variances for direct material. 3. Calculate and interpret variances for direct labor. Standard Costs Standard cost refers to expected costs under anticipated conditions. • Standard cost systems allow for comparison of standard versus actual costs. • Differences are referred to as standard cost variances. • Variances should be investigated if significant. Standard Costing: Process of establishing the standard cost Development of Standard Costs 1. Standard costs are developed in a variety of ways: a. Specified by formulas. b. Developed from price lists provided by suppliers. c. Determined by time studies conducted by industrial engineers. d. Developed from analyses of past data. Ideal Versus Attainable Standards Two schools of thought: 1. Ideal standards (perfection standards): developed under the assumption that no obstacles to the production process will be encountered. 2. Attainable Standards: developed under the assumption that there will be occasional problems in the production process.Read More

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