Variance

Hello!

2
1 Raw
Material
Variance
Formula
￮ Standard Cost – Actual Cost.

4
Yep. 5
That’s it. 6
2 Direct
Labor
Variance
DLV’s Standard &
Variance
￮ There are two standards developed for
direct labor costs namely the standard rates,
wages or costs, and standards of efficiency,
time or use.

8
Example
￮ To illustrate the variance in labor rates on a
standard cost card for Paxel, see the
following example problems: It is assumed
that the actual hours used are 1,632 hours
with an actual rate of $ 12.50 per hour to
produce 4,512 equivalent units of Paxel.
Calculate the variance in labor rates.

9
 Jam x Tarif = Jumlah

Jam actual yang digunakan 1.632 $ 12,50 aktual $ 20.400

Jam actual yang digunakan 1.632 12,00 standar 19.584

Varians tarif tenaga kerja 1.632 $ 0, 50 $816 (tidak menguntungkan)

A labor rate variance of $ 816 is unprofitable because the actual rate

exceeds the standard rate of $ 0.50 per hour. The actual labor hours
used do not include nonproductive time, which is charged to factory
overhead.
10
 DLV
The labor efficiency variance is calculated
at the end of the reporting period by
comparing the actual hours used with the
allowed standard hours, both of which are
measured at the standard labor rate. The
standard hours allowed are equivalent to
the standard number of direct labor hours
to produce one unit of product (standard
labor hours per unit) multiplied by the
actual number of units produced during the
period. 11
DLV
￮ A physical base like raw materials weight or
volume of the products like kgs., tonnes, litres,
gallons, bales, number of units etc. is taken
as basis for apportioning the joint costs to
products under this method. The process is
borne by the joint products in the ratio of
their output weight.

12
 Another Example
￮ The standard hours allowed for 4,512 equivalent units
of Paxel produced in the Assembly Department of
Wilton Manufacturing Corporation during the month
are 1,504 (4,512 equivalent units x 1/3 standard hour per
unit). The labor efficiency variance is calculated as
follows:

13
 Jam x Tarif = Jumlah

Jam actual yang digunakan 1.632 $ 12,00 standar $ 19.584

Jam standar yang diperbolehkan 1.504 12,00 standar 18.048

Varians efisiensi tenaga kerja 128 12,00 standar $ 1.536 tidak

menguntungkan

The unfavorable labor efficiency variance of $ 1,536 is caused by an

excess of 128 hours from the standard hours allowed (128 x $ 12 = $ 1,536).

14
3
Overhead’s
Variance
 Overhead
￮ The basis of allocation can vary from
department to department, depends on the
nature of each production process. There are
two important considerations in the selection
of an appropriate allocation basis. First, to
allocate overhead to the product in a
significant amount, the basis reflects the main
cause of the overhead in that department.
Second, that the chosen activity size must be
accurately monitored for each unit or order.
16
Example
￮ The monthly flexible budget for the Assembly
Department of Wilton Manufacturing
Corporation is presented in Exhibit 18-1.
Assuming that the 100 percent column is
normal capacity, the standard factory
overhead rates for the Assembly
Department are calculated as follows:

17
Continued
Illustration

18
At a 100 percent capacity level, the standard factory overhead rates
from the Assembly Department consist of the following variable and
fixed parts:

19
For example, it is assumed that Paxel is the only product produced in the
Assembling Department of Wilton Manufacturing Corporation during
March, and the following data are available at the end of the month:

20
3.5 Two-Way
Variance
Analysis
Controllable Variance
the difference between the actual factory
overhead incurred and the budget allowance
for the standard amount of the basic allocation
allowed for actual production.

22
Variance Volume
the difference between budget slack based on
the number of standards from the basic
allocation allowed for actual production and
factory overhead standards that can be
charged to work in process.

23
When standard costs rather than actual costs are charged to
production, the volume variance can be seen as the amount of fixed
factory overhead that is charged too high or too low.

24
Alternatively, it can also be calculated like this :

25
The controlled variance + volume = overall factory overhead
variance for the Assembly Department, is as follows:

26
4 Three-way
Variance
Analysis
Expenditures variance
is the difference between the actual factory
overhead and budget slack based on the actual
base allocation level.

28
Variance efficiency variable
This variance is part of the efficiency variance that measures
how much the use of basic allocations that efficiently or
inefficiently affects variable factory overhead costs.

29
Alternatively, it can also be calculated like this :

30
The unfavorable expenditure variance of $ 326 plus the unprofitable
variable efficiency variance of $ 384 is equivalent to an unprofitable
controlled variance of $ 710, which is calculated by the two variance
method.

Volume Variance
The volume variance is the same as the volume variance in the two
variance method. The sum of the three variances is equivalent to the
overall factory overhead variance as follows:

31
Other…
￮ There are other methods to describe the
variance of the overall factory overhead for
analysis. For example, part of the expenditure
variance or controlled variance caused by
the difference between the budgeted fixed
factory overhead and the actual one can be
isolated separately and is called the fixed
expenditure variance.

32
Thanks!
i made this at 1 pm last night while listening
to “I want it that way” and now I feel like
chewing on crayons.

33