STANDARD COSTING 4 predetermined benchmarks are developed for direct material and, Wicect labor quantities and/or corte are|erecnead % apoliad fo production using a predetermard rate 7 tshablishment of cost crandards For echnitrs and their peiodit onelysrs 1 Mebermine tne reasen tor ay varyances 7 | conteoting costs COMSIOERATIONS m esTABLIWNG erANoARDs + Appropriateness - period in watch tne etondacds are te be oppiied jesse On which sme vranderwe ore Cleveloped and how ong hey are expected to tact ‘Wty - degree of witticulty or rigar thet vould be incurred in echeiving the ctandord VARIANCE ANALYSIS + proEtES OF Cotegorizing the neture (favorable or unfovorable) of tne oitterences between ctondurd one actual costs 7 allows you te marage by exception Variance + dikFercace | between actiel and the vtonderd Shonderds are loote 3s Verance ore gener oly Favorgoie ehaadacds\ are ebrict ; voriance ore generally uatovera vie Octual Cord < Stondord cost Octual cost > stondord rost mareeiAau variances Standard Price x Actual Quantity SPxAQ ‘Actual Price x Actual Quantity AP x AQ Material Purchase Price Variance Material Quantity Variance i Favorable - credit Total Material Variance Semis oeLABOR VARI ances Actual Price x Actual Quantity AP x AQ ‘Standard Price x Standard Quantity SPx SQ Labor Rate Variance Labor Efficiency Variance Total Labor Variance VARIABLE QvERNEAD vaRiance © xepuavor © tut Pe clay Standard ie Atl Quy Sand re Sears un] AP x AQ SPxAQ: SsPxsQ | (Usage Subvariance) VOH Efficiency Variance (Price Subvariance) VOH Spending Variance Total Variable Overhead Variance (Underapplied or Overhead Variable Overhead) Fixe [OveRHEAD vaniance © seoinaron tual re x Act Qvntty ee Standard Quy AP x AQ (Budgeted) SPxSQ FOH Spending Variance Volume Variance Total Fixed Overhead Variance (Underapplied or Overhead Variable Overhead) ALTERNATIVE APPROACHES : On VARIANCE Foun variate areroach Yon Spending Vorionce + VOW GFtieiency Varrance FOW vpencting Veriance + FO Volume VerianceILLUSTRATION Standard Budgeted ‘Actual Budgeted Standard VoH Sema Ses Variance ‘VOH Eft Variance FOH =a e=si Seca Sivas 382 Unfavorable $1,728 Favorable ea Unfavorable ea 500 Favorable ‘Total VOH Variance ‘otal FOH Variance $624 Unfavorable $1,320 Favorable | Versio OH Fed OM Overhead Spending Variance Overhead Etfciency Variance Overhead Volume Variance | TOTAL OVERHEAD VARIANCE ILLUSTRATION Budgeted ‘Spending Variance $2,532 Unfavorable Efficiency Variance $1,728 Favorable Volume Variance $1,500 Favorable Total Variance $6% FavorableTwo variance APPROACH © C Budgeted OH Based on Standard Quantity for Overhead Output Received — | Total Applied OH sPxsa | TOTAL ACTUALOH ‘Variable OH + Fired OH Budget Variance (Controllable Variance) Volume Variance (Noncontrollable Variance) Total Overhead Variance ILLUSTRATION Budgeted as See See — — Budget Variance ‘Volume Variance $804 Unfavorable $1,500 Favorable en) Total Variance $696 Favorable ONE] variance apeRoacn @ Total Applied Overhead S (Combined OH Rate x Standard Input! Allowed for Actual Production) (sP x SQ) Total Actual Overhead (Variable OH + Fixed OH) Total Overhead VarianceILLUSTRATION Actual Standard Total Variance $696 Favorable