ACC 350 Week 10 Discussion

Professor and Class, A standard cost is a predetermined measure of what cost should be under stated conditions (1). Standard costs are estimates of what costs will be and goals that are to be achieved. Standards are used in relation to quantity and acquisition price of inputs used in manufacturing goods or providing services (2). Quantity standards specify how much input should be used to make a product or service. Price standards specify how much should be paid for each unit of the input (2). Manufacturing companies determine the standard cost of each unit of a product by establishing the standard cost of direct materials, direct labor, and manufacturing overhead that is necessary to produce the unit. The standard direct materials cost per unit of product is determined by the standard amount of material to produce the unit multiplied by the standard price of the material. Standard price refers to the price per unit of input into the production process. The standard cost is the standard quantity of an input required per unit of output times the standard price per unit of that input. Example: The standard price of the fabric is $4 per yard, and the standard quantity of the fabric to produce a dress is 3 yards. The standard direct materials cost of a dress is 3 yards x $4 per yard = $12. The company would compute the direct labor cost per unit of product as the standard number of hours required to produce one unit multiplied by the standard labor wage rate per hour (2). The quantity and price standards for variable manufacturing overhead are expressed in terms of hours and rates. The standard hours per unit for variable overhead measures the amount of the allocation base from a company's predetermined overhead rate required to produce one unit of finished goods (2). The difference between standards and actual performance is called a variance. Two types of variances used by management are price variances and quantity variances. The price variance is the difference between the exact amount that was paid for an input and the standard amount that should have been paid (2). The result is multiplied b the actual amount of the input that was purchased. A quantity variance is a difference between how much of an input was actually used and how much should have been used for the level of output. This amount is stated in dollars using the standard price of input (2).

1. https://courses.lumenlearning.com/sac-managacct/chapter/the-role-of-standard-costs- in-management/

2. Garrison, Ray. (2018). Managerial Accounting. McGraw-Hill.