Standard Costing and Variance Analysis Formulas:

Transcription

1 Cost acc 2 Standard Costing and Variance Analysis Formulas: This is a collection of variance formulas / equations which can help you calculate variances for direct materials, direct labor, and factory overhead. Direct materials variances formulas Direct labor variances formulas Factory overhead variances formulas Direct Materials Variances: Materials purchase price variance Formula: Materials purchase price variance = (Actual quantity purchased Actual price) (Actual quantity purchased Standard price) Materials price usage variance formula Materials price usage variance = (Actual quantity used Actual price) (Actual quantity used Standard price) materials quantity / usage variance formula Materials price usage variance = (Actual quantity used Standard price) (Standard quantity allowed Standard price) Materials mix variance formula (Actual quantities at individual standard materials costs) (Actual quantities at weighted average of standard materials costs) Materials yield variance formula (Actual quantities at weighted average of standard materials costs) (Actual output quantity at standard materials cost) Direct Labor Variances: Direct labor rate / price variance formula: (Actual hours worked Actual rate) (Actual hours worked Standard rate) Direct labor efficiency / usage / quantity formula: (Actual hours worked Standard rate) (Standard hours allowed Standard rate) Direct labor yield variance formula: (Standard hours allowed for expected output Standard labor rate) (Standard hours allowed for actual output Standard labor rate) Factory Overhead Variances: Factory overhead controllable variance formula: 1

2 (Actual factory overhead) (Budgeted allowance based on standard hours allowed*) Factory overhead volume variance: (Budgeted allowance based on standard hours allowed*) (Factory overhead applied or charged to production**) Factory overhead spending variance: (Actual factory overhead) (Budgeted allowance based on actual hours worked***) Factory overhead idle capacity variance formula: (Budgeted allowance based on actual hours worked***) (Actual hours worked Standard overhead rate) Factory overhead efficiency variance formula: (Actual hours worked Standard overhead rate) (Standard hours allowed for expected output Standard overhead rate) Variable overhead efficiency variance formula: (Actual hours worked Standard variable overhead rate) (Standard hours allowed Standard variable overhead rate) Variable overhead efficiency variance formula: (Actual hours worked Fixed overhead rate) (Standard hours allowed Fixed overhead rate) Factory overhead yield variance formula: (Standard hours allowed for expected output Standard overhead rate) (Standard hours allowed for actual output Standard overhead rate) Problem 1: Materials Variance Analysis: The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter as standard for the production of its Type A lawn chair. During one month's operations, 100,000 meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased. Required: Materials price and quantity variances. Solution: Actual quantity purchased actual quantity purchased Materials purchase price variance Meters of pipe Unit Cost Amount 100,000 $0.78 actual $78, ,000 $0.80 standard $80, ,000 $(0.02) $(2,000) fav. = = = Actual quantity used 87, standard $69,

3 Standard quantity allowed Materials quantity variance 86, standard $ $720 Unfav = = = Problem 2: Materials Variance Analysis: The standard price for material is $3.65 per liter. During November, 2,000 liters were purchased at $3.60 per liter. The quantity of material issued during the month was 1775 liters and the quantity allowed for November production was 1,825 liters. Calculate materials price variance, assuming that: Required: Materials price variance, assuming that: It is recorded at the time of purchase (Materials purchase price variance). It is recorded at the time of issue (Materials price usage variance). Problem 3: Labor Variance Analysis: The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct labor hours at a cost of $6.90 per hour. Required: Calculate: labor rate variance or Labor price variance. Labor efficiency or usage or quantity variance. Factory Overhead Variance Analysis: Example: Two, three & four variance methods The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is: Fixed: $4,500 / 5,000 hours = $0.90 Variable: $7,500 / 5,000 hours = $ $2.40 For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard hours allowed for actual production were 4,500. Required: Factory overhead variances using two, three and four variance methods. 3

4 ANSWER: Two Variance Method: Budgeted allowance based on standard hours allowed: Fixed expenses budgeted $4,500 Variable expenses (4,500 standard hours allowed $6,750 $1.50 variable overhead rate) $11,250 Favorable controllable variance $ (250) fav. Budgeted allowance based on standard hours allowed $11,250 Overhead charged to production (4,500 standard hours $10,800 allowed $2.40 standard rate) - Unfavorable volume variance $450 unfav. Three Variance Method: Budgeted allowance based on actual hours worked: Fixed expenses budgeted $4,500 Variable expenses (4,400 actual hours worked $6,600 $1.50 variable overhead rate) $11,100 Favorable spending variance $ (100) fav. Budgeted allowance based on actual hours worked $11,100 Actual hours worked Standard overhead rate (4,400 $10,560 hours $2.40) - Unfavorable spending variance $540 unfav. Actual hours worked Standard overhead rate (4,400 $10,560 hours $2.40) Overhead charged to production (4,500 standard hours $10,800 allowed $2.40 standard rate) Favorable efficiency variance $ (240) fav. Four Variance Method: Budgeted allowance based on actual hours worked: Fixed expense budgeted $4,500 Variable expenses (4,400 actual hours worked $6,600 $1.50 variable overhead rate) $11,

5 Favorable spending variance $ (100) fav. Budgeted allowance based on actual hours $11,100 worked Budgeted allowance based on standard hours allowed $11,250 Favorable variable overhead efficiency variance $ (150) fav. Actual hours fixed overhead rate (4,400 actual hours $0.90 fixed overhead rate) Standard hours allowed fixed overhead rate (4,500 actual hours $0.90) $3,960 4,050 Favorable fixed overhead efficiency variance $ (90) fav. Normal capacity hours (5000) Fixed overhead rate ($0.90) Actual hours worked (4,400) Fixed overhead rate ($0.90) Unfavorable Idle capacity variance (600 hours $0.90) $4,500 $3,960 - $540 unfav. 5