MAHM6e Ch09.Ab.az
Transcript of MAHM6e Ch09.Ab.az
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Standard
Costing: AManagerial
Control Tool
CHAPTER
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1. Tell how unit standards are set and why
standard costing systems are adapted.
2. State the purpose of a standard cost sheet.
3. Describe the basic concepts underlying
variance analysis, and explain when variances
should be investigated.
4. Compute the material and labor variances,
and explain how they are used for control.
Objectives
After studying this
chapter, you should
be able to:
Continued
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5. Calculate the variable and fixed overhead
variances, and give their definitions.
6. Appendix: Prepare journal entries for
materials and labor variances, and show how
to account for overhead variances.
Objectives
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Cost control often means
the difference betweensuccess and failure.
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Why Standard Cost Systems
Are Adopted
Standard costing systems enhanceplanning
and controland improve performancemeasurement.
Standard costing systemsfacilitate product
costing.
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Direct Direct
Materials Labor Overhead
Actual costing system Actual Actual Actual
Normal costing system Actual Actual Budgeted
Standard costing system Standard Standard Standard
Manufacturing Costs
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Standard Cost Sheet
for Corn ChipsStandard Standard Standard
Price Usage Cost SubtotalDescription
Direct materials:Yellow corn $0.006 18 oz. $0.108
Cooking oil 0.031 2 oz. 0.062
Salt 0.005 1 oz. 0.005
Lime 0.400 0.01 oz. 0.004
Bags 0.044 1 bag. 0.044
Total direct materials $0.223
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Standard Cost Sheet
for Corn ChipsStandard Standard Standard
Price Usage Cost SubtotalDescription
Direct materials $0.223
Direct labor:Inspectors $7.000 0.0070 hr. $0.049
Machine operators 10.000 0.0008 hr. 0.008
Total direct labor 0.057
Overhead:Variable overhead 3.850 0.078 hr. $0.030
Fixed overhead 32.050 0.0078 hr. 0.250
Total overhead 0.280
Total standard unit cost $0.560
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During the first week of March, 100,000
packages of corn chips are produced.
The standard quantity of yellow corn
meal per package is 18 ounces.
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SQ = Unit quantity standard x Actual output= 18 x 100,000
= 1,800,000 ounces
Standard Quantity of Materials Allowed
SH = Unit labor standard x Actual output
= 0.0008 x 100,000
= 80 direct labor hours
Standard Hours Allowed
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Total variance = Price variance +Usage variance
= (APSP)AQ +(AQSQ)SP
= [(AP x AQ)(SP x AQ)]
+[(SP x AQ)
(SP x SQ)]
= (AP x AQ)(SP x AQ)]
+(SP x AQ)
(SP x SQ)= (AP x AQ) (SP x SQ)
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9-12Variance Analysis: General Description
1. AP x AQ
(Actual Quantityof Input at Actual
Price)
2. SP x AQ
(Actual Quantityof Input at
Standard Price)
3. SP x SQ
(StandardQuantity of Input
at Standard Price)
Price Variance
(1-2)
Budget
Variance (1-3)
Usage Variance
(2-3)
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Unfavorable variances
occur whenever actual
prices or usage of inputs
are greater than standard
prices or usage.
Favorable variances
occur whenever the
opposite occurs.
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Cost
Time
$110,000
$100,000
$ 90,000
x
x
x
x
x
x
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Variance Analysis: Materials and Labor
Actual production 48,500 bags of corn chips
Actual cost of corn 780,000 ounces of $0.0069 = $5,382
Actual cost of
inspection labor 360 hours at $7.35 = $2,646
Actual Costs Budgeted Costs Total Variance
Corn $5,382.00 $5,238.00 $144.00 UInspection labor 2,646.00 2,376.50 269.50 U
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$558 F
Usage Variance
$702 U
Price Variance
$144 U
Total Variance
Variance Analysis: Columnar Approach
AQ x AP780,000 x 0.0069
$5,382
AQ x SP780,000 x $.0.0060
$4,680
SQ x SP873,000 x $0.0060
$5,238
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MPV = (APSP)AQ
Material Price Variance
The actual
price per unit
The standard
price per unit
The actual
quantity of
material used
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MPV = (APSP)AQ
Material Price Variance
= ($0.0069$0.0060)780,000
= $0.0009 x 780,000= $702 U
Percent of SP x SQ = $702/$4,680 = 15%
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Direct Materials Usage Variance
MUV = (AQSQ)SP
The actual
quantity of
materials used
The standard
quantity of
materials
allowed for the
actual output
The standard
price per unit
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MUV = (AQSQ)SP
Direct Materials Usage Variance
= (780,000873,000)($0.006)
= 93,000 x $0.006= $558 F
Percent of SQ x SP = $558/$5,238 = 10.7%
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Labor Rate Variances
LRV = (ARSR)AH
= ($7.35$7.00)360
= $0.35 x 360= $126 U
Percent of SR x SH = $126/$2,520 = 5%
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$269.50 U
Total Variance
Labor Variances: Columnar Approach
AH x AR360 x $735
$2,646
AH x SR
360 x $7.00
$2,520
SH x SR339.5 x $7.00
$2,376.50
$126 U
Rate Variance
$143.50 U
Efficiency Variance
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LEV = (AHSH) SR
The actual
direct labor
hours used
The standard
direct labor
hours thatshould have
been used
The standard
hourly wage
rate
Labor Efficiency Variances
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Labor Efficiency Variances
LEV = (AHSH)SR
= (360339.5)$7
= 20.5 x $7= $143.50 U
Percent of SH x SR = $143.50/$2,376.50 = 6%
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Variable Overhead Variances
Variable overhead rate (standard) $3.85/DLH
Actual variable overhead costs $1,600
Actual hours worked 400
Bags of chips produced 48,500
Hours allowed for production 373.3
Applied variable overhead $1,456
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$144 U
Total Variance
$84 U
Efficiency Variance
$60 U
Spending
Variance
Variable Overhead Variances: Columnar Approach
Actual VO$1,600
VO Rate x
Actual Hours
$1,540
VO Rate xStandard Hours
$1,456
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VOSV = (AVOR x AH)(SVOR x AH)
Variable Overhead
Spending Variances
= (AVOR
SVOR)AH
= ($4.00$3.85)400
= $60 U
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Crunch Chips, Inc.
Flexible Budget Performance ReportFor the Week Ended March 8, 2004
Cost
Formula
Actual
Costs BudgetSpending
Variance
Gas $3.00 $1,190 $1,200 $10 F
Electricity 0.78 385 312 73 U
Water 0.07 25 28 3 F
Total cost $3.85 $1,600 $1,540 $60 U
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Crunch Chips, Inc.
Performance ReportFor the Week Ended March 8, 2004
CostFormula
ActualCosts Budget
SpendingVariance
Gas $3.00 $1,190 $1,200 $10 F
Electricity 0.78 385 312 73 UWater 0.07 25 28 3 F
Total cost $3.85 $1,600 $1,540 $60 U
Budget
for
StandardHours
EfficiencyVariance
$1,135 $65 U
295 17 U26 2 U
$1,456 $84 U
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F ixed Overhead Variances
Budgeted fixed overhead $749,970
Practical activity 23,400 direct labor hours
Standard fixed overhead rate $32.05
Hours allowed to produce 3,000,000 bags of chips:
0.078 x 3,000,000 = $23,400
Budgeted or Planned Items
Actual Results
Actual production 2,750,000 bags of chipsActual fixed overhead cost $749,000
Standard hours allowed for actual
production 21,450
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Total F ixed Overhead Variances
Applied fixedoverhead
Standard fixed overhead ratex Standard hours
=
= $32.05 x 21,450
= $687,473 (rounded)
Total fixed
overhead variance$749,000$687,473=
= $61,527 underapplied
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$61,527 U
Total Variance
$970 F
Spending
Variance
F ixed Overhead Variances: Columnar Approach
Actual FO$749,000
Budgeted FO$749,970
Applied FO$687,473
$62,497 U
Volume
Variance
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Crunch Chips, Inc.
Performance ReportFor the Year Ended 2004
Actual
Costs
Budgeted
Cost Variance
Depreciation $530,000 $530,000 $ ----
Salaries 159,370 159,970 600 F
Taxes 50,500 50,000 500 U
Insurance 9,130 10,000 870 FTotal fixed overhead $749,000 $749,970 $970 F
Fixed
Overhead Items
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Volume Variance
Volume variance = $32.05(23,400
21,450)
= ($32.05 x 23,400)($32.05 x 21,450)
= $749,970$687,473
= Budgeted fixed overhead
Appliedfixed overhead
= $62,497 U
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Appendix:
Accounting forVariances
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The actual price is $0.0069 per ounce of
corn and standard price is $0.0060, and780,000 ounces of corn are purchased.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
Materials Inventory 4 680 00
Materials Price Variance 702 00
Accounts Payable 5 382 00
Material Price Variance
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During the period 780,000 ounces of corn
is placed into production. Thestandard quantity is 873,000 ounces,
and standard price is $0.006.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
Work in Process 5 238 00
Materials Usage Variance 558 00
Materials Inventory 4 680 00
Material Usage Variance
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At the end of the year, the variances for
materials and labor are usually closed toCost of Goods Sold.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
Cost of Goods Sold 971 50
Material Price Variance 702 00
Labor Efficiency Variance 143 50
Labor Rate Variance 126 00
Closing Variances
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The End
Chapter Nine