Setting standards for material costs
Website design By BotEap.comThe purchasing department will calculate direct prices for materials based on their knowledge of the following:
Website design By BotEap.com• Purchase contracts already agreed.
• Price discussions with regular suppliers.
• Quotes and estimates of potential suppliers.
• Forecasts of price movements in the market.
• The availability of discounts for bulk purchases.
• Quality of the material required. Website design By BotEap.comPrice inflation can cause difficulties in establishing realistic standard prices, Website design By BotEap.com(a) If the current price were used in the standard, the reported price change would turn adverse as soon as prices rose, which could be very early in the year. If prices rise gradually rather than by one big jump, it would be difficult to select an appropriate time to review the rule. Website design By BotEap.com(b) If an estimated mid-year price is used, the price change should be favorable. In the first semester of the year and opposing it again in the second semester assuming that the price rises gradually.
Therefore, the standard cost calculation for the material is more difficult in times of inflation, but still worth it. Website design By BotEap.com• Variations in use and efficiency will continue to be significant.
• Inflation is measurable; there is no reason why its effects cannot be removed from the reported variances.
• Standard costs can be revised, as long as it is not done too often. Website design By BotEap.comEstablishment of standards for labor costs Website design By BotEap.comHourly direct labor rates will be established through discussion with the personnel department and by reference to payroll and any agreements on salary increases and / or bonuses with the employee union representatives. Website design By BotEap.com(a) A separate hourly rate or weekly wage will be established for each different job grade / type of employee. Website design By BotEap.com(b) An average hourly rate will apply for each grade (although individual pay rates may vary based on age and experience). Website design By BotEap.comSetting standards for material use and labor efficiency Website design By BotEap.comTo estimate the materials required to manufacture each product (material usage) and also the required labor hours (labor efficiency), production experts must prepare technical specifications for each product. (Either in the production department or the work study department) The standards of material use and labor efficiency are known as performance standards. Website design By BotEap.com• The standard product specification for materials should list the quantities to be disclosed to operators in the production department (so they understand management’s control action to deal with excess material waste). Website design By BotEap.com• The standard operation sheet for labor will specify the expected hours required by each grade of labor in each department to manufacture one unit of product. These standard times must be carefully established and understood by the workforce. Where necessary, standard operating procedures or methods should be initiated.
• Price discussions with regular suppliers.
• Quotes and estimates of potential suppliers.
• Forecasts of price movements in the market.
• The availability of discounts for bulk purchases.
• Quality of the material required. Website design By BotEap.comPrice inflation can cause difficulties in establishing realistic standard prices, Website design By BotEap.com(a) If the current price were used in the standard, the reported price change would turn adverse as soon as prices rose, which could be very early in the year. If prices rise gradually rather than by one big jump, it would be difficult to select an appropriate time to review the rule. Website design By BotEap.com(b) If an estimated mid-year price is used, the price change should be favorable. In the first semester of the year and opposing it again in the second semester assuming that the price rises gradually.
Therefore, the standard cost calculation for the material is more difficult in times of inflation, but still worth it. Website design By BotEap.com• Variations in use and efficiency will continue to be significant.
• Inflation is measurable; there is no reason why its effects cannot be removed from the reported variances.
• Standard costs can be revised, as long as it is not done too often. Website design By BotEap.comEstablishment of standards for labor costs Website design By BotEap.comHourly direct labor rates will be established through discussion with the personnel department and by reference to payroll and any agreements on salary increases and / or bonuses with the employee union representatives. Website design By BotEap.com(a) A separate hourly rate or weekly wage will be established for each different job grade / type of employee. Website design By BotEap.com(b) An average hourly rate will apply for each grade (although individual pay rates may vary based on age and experience). Website design By BotEap.comSetting standards for material use and labor efficiency Website design By BotEap.comTo estimate the materials required to manufacture each product (material usage) and also the required labor hours (labor efficiency), production experts must prepare technical specifications for each product. (Either in the production department or the work study department) The standards of material use and labor efficiency are known as performance standards. Website design By BotEap.com• The standard product specification for materials should list the quantities to be disclosed to operators in the production department (so they understand management’s control action to deal with excess material waste). Website design By BotEap.com• The standard operation sheet for labor will specify the expected hours required by each grade of labor in each department to manufacture one unit of product. These standard times must be carefully established and understood by the workforce. Where necessary, standard operating procedures or methods should be initiated.