https://www.youtube.com/watch?v=_tvx_CKB7uI Assume that your product(bacon) uses

Question

https://www.youtube.com/watch?v=_tvx_CKB7uI

Assume that your product(bacon) uses a standard costing system and answer the following:

How would the company go about setting standards for this product? What types of standards would be included?

How would managers of the company use the standard costs?

Assume the company reported the following variances in the most recent period. Can you think of a scenario that would explain each combination of variances?

Unfavorable direct materials price variance, favorable direct materials usage variance, and unfavorable direct materials spending variance.

Favorable direct labor rate variance, unfavorable direct labor efficiency variance, and unfavorable direct labor spending variance.

Unfavorable direct labor efficiency variance and unfavorable variable overhead efficiency variance.

Explanation / Answer

Standard costing system is a system in which various measures are taken in planning and management section of business. In bacon company, standard would be set about the raw material ( belly pork ) , machines, employees and quality of bacon.
Raw material should be of good quality from a certified seller.
Machines should be well-functioning and updated.
Employees should be efficient for the better productivity . Measures should be also taken of employees health.
After the processing is done, bacon that is ready for sale should be quality checked properly incase a miss occurs that could be harmful for customers.

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Managers usually overviewed history of sales and production. They then decide whether to increase/decrease the price or supplies. To modify , repair or upgrade the machines, to change daily wages or surroundings/workfield according the historical data and statistics.

There are two types of costs : standard and actual. Standard cost is what is decided in planning before the start and actual cost is the practical cost which we are selling bacon units. The difference between actual and standard is called variance. If actual cost is less than standard , it is favorable . If actual cost is more than standard cost, it is unfavorable condition.

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Scenario 1 :  
ACTUAL STANDARD
  
COST M
USAGE M
SPENDING M
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Here, company is spending more cost on raw materials and the manufacturing process. Management needs to buy cheap raw materials than current and increase rate of bacon units to increase profit overall.

Scenario 2 :  
ACTUAL STANDARD
  
LABOR RATE M
LABOR EFF. M
LABOR SPENDING M
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In this, company needs better and effecient labor . Management needs to put some efforts to improve the time management of employees and production.

Scenario 3 :  
ACTUAL STANDARD
  
LABOR EFF M
OVERHEAD M

In this , labor efficiency and overhead is more than standard. It dictates company needs better employees and management in work field.  

( M stands for More )

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