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    MAS 06 Standard Costing PDF

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    Kimberly Ann Lumanog Amar

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    of 6
    8) REQ The Kerrew School of Accor tom y Gd Management liduisory Servvces MAS-06: STANDARD COSTING STANDARD ~ a benchmark set by management 1 ald of performance measurement. In manufacturing companies, standards are classified ingo two (2! “ategonie + QUANTITY Standard ~ indicates the quantity of raw materials or tabar time required to produce @ unit of product. This 1s normally expressed per unit of output (€.9., 3 pieces per unit) + COST Standard - indicates what the vost of the quantity standard should be. This 1s normally expressed per unit of mput (e.9., ® 2.00 per piace) STANDARD COSTS — systematically pre-determined costs established by Management to be used as a basis for companson with actual cost. BUDGETS vs. STANDARDS f BUDGETS STANDAROS | | Purpose | Budgets are statements of exvected | Gtardards pertain to what costs should be | costs. geen 9 certain level of performance. Budgets emphasize cost levels that | Standards emphasize the levels to which costs | uld not be exceeded. houtd be reduced. 7 asl | Budgets are set for all departments -- | Standards are set only for the production or | i sales, administration & manufacturing. | manufacturing division of the firm i Analysis | When actual data differ from the | Material arnounts of variance are revieweo | budget, it may be an indication of | and investigated so that necessary corrective | either good or bad performance. __|_actroiss are implemented. 7 ms Emphasis | Coverage STANDARD COST VARIANCE ANALYSIS. VARIANCE = Actual Costs (AC) AC > SC: Unfavorable {debit katance/adverse) AG « SC: Favorabie (credit balance/desirable) DIRECT MATERIAL Variance ‘Actual Matenal Cost € Actual Quantity (AQ) x Actual Price (AP) _- Standard Material Cost € Standard Quantity (SQ) x Standard Price (SP) Materials Cost Variance Analysis. Quantity variance: = AQXSP = _Bitference im quantities x Standard price Brice variance: AQXAP = ‘ctUal quantity x Difference in prices DIRECT LABOR Variance ‘Actual Labor Cost € Actual Hours (Ati) x Actual Rate (AR) Standard Labor Cost € Standard Hours (SH) x Standard Rate (SR) Labor Cost Variance Analysis. Efficiency variance: AHxSR = Difference in hours x Standard rate Rate variance: AHXAR Actual hour x Difference in rates FACTORY OVERHEAD (FOH) Variance = _(Actuat FO! coss) ~ (Standard FOH cost) (Refer to page 2 for complete FOH Variance 4nlvsis) (MATERIAL PRICE, MIX and YIELD Variances Mix and yield variances are normally calculated when production requires combining several materials to produce a unit of product. Actual Material Cost - Standard Material Cost Material varianc Analysis: Price vanance: AQxaP Mix variance: (AQxSP) » TAQASP Yield variance: TAQASP - Standar:i Cost Legend ‘AQ - Actual quantity AP - Difference in prices SP = Standard price TAQASP - Total Actual Quantity at Average Standard Price NOTE: Mix and yield variances may also apply to diucit Jabor, specifically in situations where varior labor skills are required to produce units of products. Page 1 of 6 pages RSG. he Revrew School of Gecommtoncry MAS-06 STANDARD COSTING IMPORTANT NOTES on MATERIAL and LABOR VARIANCE ANALYSIS 1 Metenal PRICE variance 1s alsa known as Matenal spending variance, maternal money vanance, matenal rate vanance 2) Material QUANTITY vanance is also known as Maternal usa. e, mater a eifcency vanance 3. Material usage vanance +54 ¢ e whl 7 ce variance 29e vanance |S 9 quantity variance while mate! price usage vanance 1s a price vari 4. Labor RATE vanance 1s also known as Labor price variance, labor spanding vananie, iabor money variance S._ Labor EFFICIENCY variance #s also knows ___ Labor hours variance, labor sage vanance, labor time variance Labor efficiency vanance excluces idle time spent in the production. If any, idle time 1s separately expioinea through the Idle Time Varianc 2, which 1s regarded as unfavorable. LE TIME variance = Idle Time x Standard Labor Rate FACTORY OVERHEAD (FOH) VARIANCE ANALYSIS. One-way variance analysis Computation Legens FOH Vanance AFOH ~ SFOH AFOH: Actual FOH SFOM: Standard FON = (SH x SR) Two-way vanance analysis: Controtlable vanance AFON ~ BASH BASH: Budget Adjusted for Standard Hours Volume vanance BASH ~ SFOH BASH = Budgeted FFOH + (SH x Vanabie FOH Rate) FFOM: Fixed Factory Overnead Three-way variance analysis: Spending vanance AFOH- BAAH BAAH: Budget Adjusted for Actual Hours Efficiency variance BAAN - 8 Se BAAN = Budgeted FFOH + (AH x Vanable FOH Rate) Volume variance BASH ~ SFOH. Four-way variance analysis. Vanable Spending variance AFOH (¥} = BAAH (Vv) AFOH (V): Actual Variable FOH Fixed Spending vanance AFOH (F) - BAAH (fF) AFOH (F)> Actual FFOH Efficiency variance (variable) BAA ~ BASH BAAH (v): Actual Hours x Vanable FOH Rate Volume variance (fixed) BASH ~ SFOH SAAM (F): Budgeted FFOH IMPORTANT NOTES on FACTORY OVERHEAD VARIANCE ANALYSIS 1. Standard Factory Overhead (SFOH) = Standard ours x Standard FOK Rate. Under standard costing, SFOH 's hkewise referred to as tne Applied Factory Overead. 2. IF AFOH is more than SFOH (appii2d), then factory ovevhead 1s said to be under-applied, hence, under: application indicates an unfavorable variance, wnne over application indicates a favorable variance 3, The term capacity variance 1s also usec! to rican the volume variance 4. Budget Variance = Actual Cost - Buriaeted Cost = Actual FCH ~ Budgeted FOH (8FOH) + Under 2-way analysis where BASH 1s deducted trem AFOH, budget variance = controllable variance 2 Under 3-Way analysis where 88AH is detucted fram AFOM, budget variance = spending variance 5. Volume variance is actually the fixed voume variance, there is no such thing as a variable volume or vanable capacity variance 6. Under the 3-way approach, the FOH Efficiency Variance is actually the Variable Efficiency Variance. Other than ‘BAAH ~ BASH, "vanable overtiead efficiency variance may also be computed based on Change in hours x variabie FOH rate = (&H - SH) VR 7. FOH variances may ciassified into™ + Variable FOH Vanances = Vanable Spending Variance + (variable) Efficiency Variance + Fixed FOH Variances ~ Fixed Spending Variance + (fixed) Volume Variance 8. Alternatively, another FOH varicnce analysis may iciude the following variances (NOTE: these Variances aré not included ini the boara exam syllabus for Management Advisory Services) + IDLE capacity variance: BAAH ~ (AH x $8) + TOTAL efficiency variance: 4 Hx SR 2 FIXED efficiency (effectiveness) variance’ & H x FR (where: FR is the fixed FOH Rate) 9. The Manufacturing Efficiency Variance mcorsorates the effect of both FOH Efficiency Vanance and Labor Efficiency Variance. In some cases, the matenai quantity variance may also be included. 10. DM Variance + DL Variance + FOH Variance = Production or Manufacturing Cost Variance USES OF STANDARD COSTS STANDARD COSTING PROCEDURES. Cost control 1. Establish standards Pricing decisions Measure actuai performance Costing of inventories Coinpare actual performance with standards Motivation and performance appraisal Take corrective action when needed Cost awareness and cost reduction Rovise standards when needed Preparation of budgets Preparation of cost report Management by exception Page 2 ot pages ReSQ. The Review School of lecountoncy MAS-06 STANDARD COSTING EXERCISES: STANDARD COSTING 1 Materials and Labor Vanance Analy s" Cow Duck Company has establishes th: following stancards for a single unit of its main product, Selfie Camera Tnipod (Staintess Edition): Inputs Standards Direct materials 3 metal bars at P'S per bar Direct labor 2 labor hours at P 10 per hour + At the start of the year, the budget includes a planned production of 100 units of tripod based on normal capacity «At the end of the year, actual prcduction was 120 units of triped, which resulted to using 400 bars of metal, purchased at a cost of ? 6 per par. REQUIRED. 1. Based on the BUDGETED preduictie of 100 units. A) How many bars must the company plan to use? (Budgeted quantity) 8) How much materials cost 1s included in the budget? (Budgeted cost) Determine the actual cost of materials used. (Actual cost) Based on the ACTUAL production of 120 unis: A) How many bars shou'd have been used? (Standard quantity) 8) How much materials cost should have been curred? (Standard materials cost) ©) How many labor hours shoufo nave seen spent? (Standard hours) 1) How much labor cost shud nave been incurred? (Standard labor cost) 4. Determine the following A) Materials budget vaniar.e B) Materials standard cost vanance C)_ Materials quantity and price variance 5. Inthe following year, Phote purchased 500 oars at a total cost of P 2,000 while only 400 bars out of these were used; the standard quantity allowed for the actual production was 380 bars. Determine the following: A) Total materials variance B) Materials quantity variance C) Materials price usage variance 1D) Materials purchase price varience 6 During the month, a total payroll of P ° produce the 120 units of Tripod. bet A) Total labor variance B) Labor efficiency variance ) Labor rate variance 200 was paid to laborers, working 200 labor hours, to the following: Solution guide to. requirernent i ACTUAL AQ uses = AP = DIRECT MATERIAL Variance = AC - SC = - Materials Quantity Variance (MQW) Materials Price usage Variance (MPV) AQ seo (AP ~ SP) AQK AP: x = Miernatie Gp AQ SP: x = shaw Sulution SQ x SP: x J mqv — Solution guide £0 requirement no, 6 ACTUAL AH = AR DIRECT LABOR Variance = AC ~ SC = - = Labor Efficiency Variance (LEV) © (sl ~ SH) SR = ( Labor Rate Variance (LRV) = AH (AR ~ SR) = (+ AH x ARS xk es Manne ge ye SRe kp = {ation SH x SR; x a eve ~ Page 3 of 6 pages & 5) ReBlh- The Revo Schack of Hecourcone MAS-06 STANDARD COSTING ad Budge enarcina 1's factory overhead | where: X ~ number of labor hours Normat Capa’ 1 auageted Hours. AY. Rewts Overhead (VFO!) _C) igeted Overnead 0) ounts Y adwsted vased cn 7,500 actual hours? vases 90 8,000 standard hours? iagetes FOH if adjustec Factory Overheao Vanance A: aiysi, 10:Varance Meth? 3. faery Oataas Yara 8 2c any 1009 ber Neus peta Board capacity, the TRE dure factory overhead rate 5 P 13 per !2b9r hour based oe 96,000 of budgeted fixed cost Pet sete tgd 2 variable cost rate of PS per labor hour. During landed, ‘te company operated at 12,500 Teoce roure, with actuat factory cverhead cast of P 168,000 ber of standard labor hours piiowed for the production actually attained 1s 11,000. REQUIRED: 1. Overall FOH variance 2. FOH controltable variance 3, FOH volume variance story Overhead Varance Analysns (Two, Inret, four Way varrenc® Method) Hae Bull Company provides the following prodci.n O3ta cea factory overnead cost per unit uf product: 4 nours at P 3.00 Pe hour A) Budgeted fixed factory overhesd 20,000 8) Normal production 2,500 uni €) Actual production “2,000 unit 19) Actual hours 7,500 hours £) Actual factory overhead incurted (70% fixed) 25,000 REQUIRED: Determine the following: 1. Budgeted factory overnead Volume variance 2. Standard factory overhead ‘Spending variance J. Budgeted FOH bases on actual hours Efficiency variance 2. Budgeted FOH based on standard hows 9. Variable spending variance 5. Controllable variance 10 Fixed spending variance Factory Overhead Variance Analysis (Buca fassume the same data in item number 4 variat-s, Fixed Vanances) Seay "ory thvee:nay Fourie asonsp asco Con srs si Spor. 24.000 Vol tel = {35} Fonte 81,000 0 ‘iu Vol cw) Wie0oU —vottr) = 5 ADDITIONAL REQUIREMENTS {continued ‘row tem number 4): none 0 ree ensi) warance (2) 1 Fred volume variance 1. budget (enble) varorce (3 wa) 15. orale FM varnce 15 Mancble contaabie arene 16. Fed FOH vanance 6. Materials, Labor and Overhead Vanances (Compute forthe m Se Seondard variable costs pe- unit Ay. Materais: 4 pounds P ® 8) Drea tabor. hours @P 12.00 » 600 2) Qunsbie overhead P® per direct labor hour pe + production ussing amounts) 8,000 units * Materials purchases, 32.00 rounc P 62,000 " Materials used at standard prices, 31,260 pounds: po Det labor (actual) hows 47,200 Material purchase price ve.iance Matenal use variance Direct labor rate variance Direct iabor efficiency variance Vanable overhead spending variance Vaniabie overnead efficiency vanance Actual variable overhead cost P 2,000 adverse P P 2,000 favorable p P 1,500 credit p Pp Page 4 of 6 pages Sl. The Revrew Schaal of Gcerdon STANDARD COSTING Answers to item no. 6 Materials: 4 pounds @ P_1.87 Direct Labor 0,5 hour @ 1 12.09 Variable overhead: F 8 per direct labor hour Materials used at standard prices, 31,200 pounds Direct iapor (actual) 4,100 hours Material usage variance Direct labor efficiency variance vanable overhead efficiency vartance Actual varrable overhead cx st nals Price, Mix and Yield Variance» Gorgorita Merger produces the pupuler *3nt standards for one kilo of the “3nd” face powder MAS-06 2250 6.00 P400 58,500 P 47,200 P1508 1.2000 Ps00U 31,300 face powder. Gorgonita has in its budget the following Ingredients Standard Quar (input) (Grams) Standare Unit Cost Standard Cost Paminta 200 grams (20%) P3 600 Gawgaw 700 grams {70% Pa P 2,800 Atsuete _ 100 grans (10%) Ps 500 TOTAL 1,000 grams (106%) P 3,900 The company reported the following productio: ‘nd cost data for the 2019 operations: Ingredients Actual Quantity, (Input) (Grams) Actual Unit Price Actual Total Cost Paminta 45,000 P4 180,000 Gawgav: 125,000 3 375,000 Atsuete 30,000 Pe P 180,000 _ TOTAL 200,000 P 735,000 The company produced 190 kilos of ‘311" face powder in 2019. REQUIRED: 1. Total matenals cost variance 2. Materials price variance 3. Materials mix variance 4. Materials yield variance WRAP-UP EXERCISES (TPUE OR FALSE, MULTIPLE-CHOICE) Standard costing applies to both manufacturng and non-manutacturing costs 1 2. The standard cost system 15 compatible with job order costing, but not with process costing, 3. Avvaniance with a debit balance indicates unfavorabie performance 4. Unfavorable variances should be reviewed, but significant favorabie variances need not be reviewed. 5. Material amount of variances shouid pe closer! co the ‘a. Cost of goods sold only b. Cost of goods sold and finistied goods inventory C. Cost of goods sold, finished goods inventory and work in process 4G. Cost of goods sold, finished goods inventory, work in process and direct materials 6. Standards can pinpoint responsibility and, if properly used, can help motivate employees. 7. Which department 1s usually held respousible for an unfavorable materials price vanance? a. Production b. Purchasing c.Engineering 4. Materials handling 8. In standard costing, materials efficiency vanances are the responsibility of a. Purchasing and sales b._ Sales and industrial engineering ¢. Production and industrial craneering d. Purchasing and industrial engineering 9. Which set of terms describes the same type of variance? Price variance, rate variance, use variance Price variance, rate variance, efficienry variance Use variance, efficiency variance, quantity variance Use variance, efficiency variance, «tending variance Page ot pages ; ©) Rela - The Rervon School of Cecoratarng MAS-06 STANDARD COSTING thems 10.and 13 are based on the ‘o--sw Gg) faeries The standard for each finished un t cf prude t alicss for 3 pounds of piast:c at P.O 72 per pound. Durie r Deemer 4,500 pounds of plastic were ‘ough’ at P075 per pound, and used 4100 pounds procacticn of 1,306 fished ur 2s of product a2 10. What 1s the matenats quantity vanance fer December? 2 P 144 favorabie P 144 untavorable ? 432 favorable 432 unfavorable 11 What «6 the matenats orice 2 123 favorable . P:123 untavorable © P1335 favorable 6. P 135 unfavorable 12. A debit balance in the iabor eff.uency variance wducates that 2 Standard hours exceed actual hours b. Actual hours exceed standard hoi.r: © Actual nours exceed normai hour: 4 Normal hours exceed actual hours, 13 The direct labor costs for the month of July 2018 were as follows: i ance for Oecseher? Actual direct labor how's 20,000 Standard airect tabor hours 21,000 Direct labor rate variance unfavorable 3,000 Total payrott 126,000 What was the direct labor efficiency vaniance? ‘@ 6,000 favorable b. P6,150 favorable © P6,150 unfavorable dP 6,300 unfavorable 14. Under the two-variance method fo. onalyzrg fectory overhead, budget or controllable variance is computed by subtracting {ror actual fectory overhead costs incurred the 3. Budget allowance based on actual hours b. Budget allowance based on normal hours © Budget allowance based on standard In 4. Budget allowance based on budgeted hours, 15. Under the three-variance method for analyzing factory overhead, spending variance 1s computed by subtracting from actual factory overhead costs incurred the 2. Budget allowance based on actual sours b. Budget allowance based on normat hours Budget allowance based on stendarc: curs 4. Budget allowance based on vudgeted curs 16. The manufacturing overhead variances were determined as follows: Vanable uverrvad scending variance 3,500 F Variable overhead efficiency variance P 4,000 U Fixed overheaa spending variance P 5,000 F Fixed overhead volume variance P6,500U What 1s the overhead controllable variance? a PS00U bP 1,500 u

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