In Conclusion Accounting Help

We have tried to illustrate that cost information is not just for cost accountants. Indeed, it affects virtually every aspect of business operations. At Brice, the savings from purchasing inexpensive materials made the purchasing department look good but created
cost overruns and other problems throughout the organization. While a cost accounting system does not solve such problems, it can bring the many dimensions of the problem promptly to management’s attention.

Summary of Cost Variances For your convenience, the six cost variances discussed in this chapter are summarized on the following page.

A Final Note: JIT Systems and Variance Analysis

A JIT approach, as discussed in Chapter IS-, can reduce or eliminate many unfavorable cost variances, For instance, long-term pricing agreements with a select group of suppliers can virtually eliminate materials price variances. Material usage variances caused. by defective materials also may be minimized. Should a batch of inferior materials be encojmtcred, the production process is halted and the supplier is contacted to resolve the problem immediately. Thus, rather than discovering quality control problems after the fact, a JIT system makes it possible to detect and’ correct quality problems as they occur.

Workers in a JIT system must be able to shift production quickly from one product to another. Adherence to carefully planned production schedules reduces idle time and eliminates non-value-added activities. As a consequence, labor efficiency variances 01′- .
ten are improved under a JIT approach. Well-trained employees, working smarter and more efficiently, can minimize the need for overtime hours. Thus JIT systems may reduce or eliminate unfavorable labor rate variances. Finally, by cutting overhead costs associated with non-value-added activities. JIT systems also help management avoid unfavorable overhead spending variances.

Search for lumber companies. Choose at least three wholesale hardwood lumber companies to investigate the prices of lumber. The standard size of a board-foot of lumber is 1 inch deep by 12 inches wide by 12 inches long. Prices are typically given by the board-foot. Search for the prices of ash, cherry, and white oak and create an average price per board-foot for each type of lumber. Use the three prices to develop standard costs for a product that would require 3 board feet of ash, 2 board-feet of cherry, and 6 board-feet of white oak.

Posted on November 24, 2015 in Standard Cost Systems

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