Management Accouting

Standard costs are established unit costs used to motivate optimal productivity and efficiency. These are monetary measures with which actual costs are compared. Standard costs may be based on engineering, accounting and statistical quality control studies. Budgeting would be a disaster if estimates are not based on well-established standard cost system. Standards costs are bases of intelligent forecasting and projections.

Question 1

Illustration A19-2: Foundry Standard Cost

1. Material Cost = 101.92: because costs are calculated for a lot of 100 units, the standard cost of phosphor bronze is 1.12 per pound and one unit uses 0.91 pounds.

100x0.91x1.12=101.92

2. Pattern Cost=15

3. Standard hours per 100 pcs=87.12

4. Standard Rate per hour=18

5. Total foundry standard cost: sum of material cost, pattern, molding cost, grinding cost and snagging cost=101.92+15+87.12+18+27.20= 249.24

Illustration A19-3: Parts Department Standard Cost

1. Material Cost=249.24

2. Standard hours per 100 pcs=0.75 0.55 0.93 0.47 0.17 5.00 0.20 0.30 0.47 0.50 5.80

3. Standard Rate per hour=42.9 40.3 40.3 40.3 40.3 40.3 40.3 40.3 40.3 40.3 40.3

4. Total Parts Department Standard Cost

= sum of material cost, and the total of operations and tools costs

= 249.24+32.18+22.17+37.48+18.94+6.85+201.50+8.06+12.09+18.94+233.74=861.34

Illustration A19-4: Assembly Department Standard Cost

Total Assembly Department Standard Costs

= sum of parts of assembly costs and operations and tools standard costs under the assembly department

=861.34+247.20+227.73+448.47+968.35+284.60+1,135.29+90+30+24+11.12+40.41+18.45+

39.45+28.38+236.25+155.25+189.00=5,035.29

Question 2

In a standard cost system, each year, a base is predetermined. This base won't change during one year even if material, labor and overhead change. The cost of each product, parts, components comes from these calculations and uses in each accounting files of the company.

However, if an actual cost system is set up, all...