Mizzou ACCTCY 2037 - Chapter 16 Outlines (7 pages)

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Chapter 16 Outlines



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Chapter 16 Outlines

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Pages:
7
School:
University of Missouri
Course:
Acctcy 2037 - Accounting II

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Chapter 16 Standard Cost and Variance Analysis for Decision Making More about Standard Costs Standard costs are the costs that a company should incur in performing an activity or producing a product under a given set of planned operating conditions o aid in the development of budgets o most valuable use controlling the company s operations o flexible budgeting for manufacturing costs shows the standard costs for direct materials direct labor and factory overhead at various levels of production o managers use this flexible budget as a benchmark against which to measure the actual costs of production o if an actual production cost is different from the standard cost budgeted for the actual level of production variance one or more of the planned conditions must not have existed o When the actual cost is greater than the standard cost the variance is favorable o When the actual cost is less than the standard cost the variance is unfavorable o By analyzing favorable and unfavorable variances managers can determine which of the planned conditions did not exist and decide what changes if any to make in the company s operations Recording Standard Costs in the Accounts o Standard cost system normally assigns standard costs rather than actual costs to each of its inventory accounts Raw Materials Inventory Goods in Process Inventory and Finished Goods Inventory Simplifies costs by eliminating the following tasks Keeping detailed records of actual costs to support the raw materials inventory the supporting raw materials inventory records can be kept in physical quantities only Recording actual costs on job order cost sheets in job order costing Calculating actual costs per unit in process costing Managers avoid assigning different costs to identical units in inventory just because problems such as inefficient production by a new employee a machine breakdown or the use of faulty materials result in production costs that are higher for some units than for others Thus a company



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