Hermon O. Thompson Sports, Inc. (HOTS)
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Hermon O. Thompson Sports, Inc. (HOTS). To illustrate the use of standard costs, consider the Herman O. Thompson Sports, Inc. aka. HOTS, Inc. Recall . . . HOTS, Inc. . . . standard cost card. AQ x AP. AQ x SP. SQ x SP. Materials Price Var. Material Quan Var. Labor Rate Var. - PowerPoint PPT Presentation
Transcript of Hermon O. Thompson Sports, Inc. (HOTS)
To illustrate the use of standard costs, consider the Herman O. Thompson Sports, Inc. aka
Recall . . .
. . . standard cost card
Quantity Price Cost
DM 3.5 Yards $6.00 $21.00
DL 2.0 Hours 18.00 36.00
VOH 2.0 Hours 4.00 8.00
Standard Cost Per Unit $65.00
First, a General Model for Variance Analysis
AQ x AP AQ x SP SQ x SP
Total Variance
Variance Variance
Materials Price Var.
Labor Rate Var.
VOH Spending Var.
Material Quan Var.
Labor Eff. Var.
VOH efficiency Var.
AQ x AP AQ x SP SQ x SP
Total Variance
Variance Variance
DM Price Variance
DL Rate Variance
VOH Spending Var.
DM Quantity Var.
DL Efficiency Var.
VOH Efficiency Var.
Another Way to Calculate Variances
DM Price Variances . . .
DM Quantity Variances . . .
An Example
Calculating Variances
Calculating Direct Materials Variances
Quantity Price Cost
DM 3.5 Yards $6.00 $21.00
DL 2.0 Hours 18.00 36.00
VOH 2.0 Hours 4.00 8.00
Standard Cost Per Unit $65.00
Data for last month’s production:
# of suits completed
Cost of DM purchases (20,000 x $5.40)
Yards of material used
5,000
$108,000
20,000
Using these data and the data from the standard cost card, calculate the material price and quantity variances.
AQ x AP AQ x SP SQ x SP$20,000 x $5.40
$108,000
$20,000 x $6
$120,000
17,500 Yds x $6
$105,000
Price Variance
Quantity Variance
$3,000(U)
$12,000(F) $15,000(U)
Total Variance
Alternative method – Direct Materials Price Variance
Alternative method – Direct Materials Quantity Variance
Isolating the Variances
The objective of variance analysis is to isolate the variances as soon in the
process as possible.
AQ x AP AQ x SP SQ x SP$20,000 x $5.40
$108,000
$20,000 x $6
$120,000
17,500 Yds x $6
$105,000
Price Variance
Quantity Variance
$3,000(U)
$12,000(F) $15,000(U)
Total Variance
Placing Responsibility
For Variances
AQ x AP AQ x SP SQ x SP$20,000 x $5.40
$108,000
$20,000 x $6
$120,000
17,500 Yds x $6
$105,000
Price Variance
Quantity Variance
$3,000(U)
$12,000(F) $15,000(U)
Total Variance
Calculating Direct Labor Variances
Data for last month’s production:
# of suits completed
Cost of Direct Labor (10,500 x $20)
5,000
$210,000
Using these data and the data from the standard cost card, calculate the labor rate and efficiency variances.
AH x AR AH x SR SH x SR10,500 Hrs x $20
$210,00010,500 Hrs x $18
$189,00010,000 Hrs x $18
$180,000
$30,000(U)
$21,000(U) $9,000(U)
Rate Variance
Efficiency Variance
Alternative MethodDL Rate Variance
Alternative MethodDL Efficiency Variance
Calculating Variable Overhead
Data for last month’s production:
# of suits completed 5,000
Actual DLHs 10,500
Actual VMOH $40,950
Using these data and the data from the standard cost card, calculate the variable overhead variances.
AH x AR AH x SR SH x SR
$950(U)
$1,050(F) $2,000(U)
Actual OH Cost
$40,950
10,500Hrs. x $4
$42,000
10,000 Hrs. x $4
$40,000
Spending Variance
Efficiency Variance
Alternative MethodOverhead Spending Variance
Alternative MethodOverhead Efficiency Variance
This is still an accounting
class isn’t it?
Where are the journal entries. I
want journal entries!
Purchase of Materials
Raw Materials DM Price Variance Accounts Payable
120,00012,000
108,000
Usage of Materials
Work in Process
DM Qty Variance
Raw Materials
105,000
15,000
120,000
Direct Labor Cost
Work in Process
Labor Rate Variance
Labor Eff Variance
180,000
21,000
9,000
Wages Payable 210,000
