Standard Costing

Standard Costs and Variances
Chapter 10
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
10-2
Standard Costs
Standards are benchmarks or “norms” for
measuring performance. In managerial accounting,
two types of standards are commonly used.
Quantity standards Price standards

specify how much of an specify how much
input should be used to should be paid for
make a product or each unit of the
provide a service. input.
Examples: Firestone, Sears, McDonald’s, hospitals,

construction, and manufacturing companies.
10-3
Standard Costs
Deviations from standards deemed significant
are brought to the attention of management, a
practice known as management by exception.
Standard
Amount
Direct
Material
Direct Manufacturing
Labor Overhead
Type of Product Cost

10-4
Variance Analysis Cycle

10-5
Setting Standard Costs

Should we use I recommend using practical
ideal standards that standards that are currently
require employees to attainable with reasonable
work at 100 percent and efficient effort.
peak efficiency?
Engineer Managerial Accountant

10-6
Setting Direct Materials Standards

Standard Price Standard Quantity
per Unit per Unit
Final, delivered Summarized in

cost of materials, a Bill of Materials.
net of discounts.
10-7
Setting Direct Labor Standards

Standard Rate Standard Hours
per Hour per Unit
Often a single Use time and

rate is used that reflects motion studies for
the mix of wages earned. each labor operation.
10-8
Setting Variable Manufacturing

Overhead Standards
Price Quantity
Standard Standard
The rate is the The quantity is

variable portion of the the activity in the
predetermined overhead allocation base for
rate. predetermined overhead.
10-9
The Standard Cost Card

A standard cost card for one unit
of product might look like this:
A B AxB
Standard Standard Standard
Quantity Price Cost
Inputs or Hours or Rate per Unit
Direct materials 3.0 lbs. $ 4.00 per lb. $ 12.00
Direct labor 2.5 hours 14.00 per hour 35.00
Variable mfg. overhead 2.5 hours 3.00 per hour 7.50
Total standard unit cost $ 54.50
10-10
Using Standards in Flexible Budgets
Standard costs per unit for direct materials, direct

labor, and variable manufacturing overhead can be
used to compute activity and spending variances.
Spending variances become more

useful by breaking them down into
quantity and price variances.
10-11
A General Model for Variance Analysis
Variance Analysis
Quantity Variance Price Variance
Difference between Difference between

actual quantity and actual price and
standard quantity standard price
10-12
Quantity and Price Standards

Quantity and price standards are
determined separately for two reasons:
 The purchasing manager is responsible for raw

material purchase prices and the production manager
is responsible for the quantity of raw material used.
 The buying and using activities occur at different times.

Raw material purchases may be held in inventory for a
period of time before being used in production.
10-13
Variance Analysis
Materials quantity variance Materials price variance

Labor efficiency variance Labor rate variance
VOH efficiency variance VOH rate variance
10-14
(1) (2) (3)

Standard Quantity Actual Quantity Actual Quantity
Allowed for Actual Output, of Input, of Input,
at Standard Price at Standard Price at Actual Price
(SQ × SP) (AQ × SP) (AQ × AP)

(2) – (1) (3) – (2)
Spending Variance
(3) – (1)
10-15

Actual quantity is the amount of direct materials, direct
labor, and variable manufacturing overhead actually used.
(1) (2) (3)


(2) – (1) (3) – (2)
Spending Variance
(3) – (1)
10-16

Standard quantity is the standard quantity allowed
for the actual output of the period.
(1) (2) (3)


(2) – (1) (3) – (2)
Spending Variance
(3) – (1)
10-17

Actual price is the amount actually
paid for the input used.
(1) (2) (3)


(2) – (1) (3) – (2)
Spending Variance
(3) – (1)
10-18

Standard price is the amount that should
have been paid for the input used.
(1) (2) (3)


(2) – (1) (3) – (2)
Spending Variance
(3) – (1)
10-19
Learning Objective 1
Compute the direct

materials quantity and
price variances and
explain their
significance.
10-20
Materials Variances – An Example
Glacier Peak Outfitters has the following direct

materials standard for the fiberfill in its mountain
parka.
0.1 kg. of fiberfill per parka at $5.00 per kg.
Last month 210 kgs. of fiberfill were purchased and

used to make 2,000 parkas. The materials cost a
total of $1,029.
10-21
Materials Variances Summary

× × ×
Standard Price Standard Price Actual Price
200 kgs. 210 kgs. 210 kgs.
× × ×
$5.00 per kg. $5.00 per kg. $4.90 per kg.
= $1,000 = $1,050 = $1,029
Quantity variance Price variance

$50 unfavorable $21 favorable
10-22

× × ×
200 kgs. 210 kgs. 210 kgs.
0.1 kg per parka  2,000 parkas
× × ×
= 200 kgs
$5.00 per kg. $5.00 per kg. $4.90 per kg.
= $1,000 = $1,050 = $1,029

10-23

× × ×
200 kgs. 210 kgs. 210 kgs.
× ×  210 kgs
$1,029 ×
$5.00 per kg. $5.00 per kg.
= $4.90 per kg $4.90 per kg.
= $1,000 = $1,050 = $1,029

10-24
Materials Variances:
Using the Factored Equations
Materials quantity variance
MQV = (AQ × SP) – (SQ × SP)
= SP(AQ – SQ)
= $5.00/kg (210 kgs – (0.1 kg/parka  2,000 parkas))
= $5.00/kg (210 kgs – 200 kgs)
= $5.00/kg (10 kgs) = $50 U
Materials price variance

MPV = (AQ × AP) – (AQ × SP)
= AQ(AP – SP)
= 210 kgs ($4.90/kg – $5.00/kg)
= 210 kgs (– $0.10/kg) = $21 F
10-25
Responsibility for Materials

Variances
Materials Quantity Variance Materials Price Variance
Production Manager Purchasing Manager
The standard price is used to compute the quantity variance

so that the production manager is not held responsible for
the purchasing manager’s performance.
10-26
Responsibility for Materials Variances

Your poor scheduling
I am not responsible for sometimes requires me to
this unfavorable materials rush order materials at a
quantity variance. higher price, causing
unfavorable price variances.
You purchased cheap
material, so my people
had to use more of it.
Production Manager Purchasing Manager

10-27
Quick Check  Zippy
Hanson Inc. has the following direct materials

standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 1,700 pounds of materials were
purchased and used to make 1,000 Zippies. The
materials cost a total of $6,630.
10-28
How many pounds of materials should

Hanson have used to make 1,000 Zippies?
a. 1,700 pounds.
b. 1,500 pounds.
c. 1,200 pounds.
d. 1,000 pounds.
10-29
How many pounds of materials should

Hanson have used to make 1,000 Zippies?
a. 1,700 pounds.
b. 1,500 pounds.
c. 1,200 pounds.
The standard quantity is:
d. 1,000 pounds.
1,000 × 1.5 pounds per Zippy.
10-30
Hanson’s materials quantity variance (MQV)

for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
10-31
Hanson’s materials quantity variance (MQV)

for the week was:
b. $170 favorable.
d. $800 favorable.
MQV = SP(AQ - SQ)
MQV = $4.00(1,700 lbs - 1,500 lbs)
MQV = $800 unfavorable
10-32
Hanson’s materials price variance (MPV)

for the week was:
b. $170 favorable.
d. $800 favorable.
10-33
Hanson’s materials price variance (MPV)

for the week was:
b. $170 favorable.
d. $800 favorable. MPV = AQ(AP - SP)
MPV = 1,700 lbs. × ($3.90 - 4.00)
MPV = $170 Favorable
10-34

× × ×
1,500 lbs. 1,700 lbs. 1,700 lbs.

× × ×
$4.00 per lb. $4.00 per lb. $3.90 per lb.
= $6,000 = $ 6,800 = $6,630

10-35

Recall that the standard quantity for 1,000 Zippies
is 1,000 × 1.5 pounds per Zippy = 1,500 pounds.
× × ×
1,500 lbs. 1,700 lbs. 1,700 lbs.

× × ×
$4.00 per lb. $4.00 per lb. $3.90 per lb.
= $6,000 = $ 6,800 = $6,630

10-36
Compute the direct labor

efficiency and rate
variances and explain
their significance.
10-37
Labor Variances – An Example

labor standard for its mountain parka.
1.2 standard hours per parka at $10.00 per hour
Last month, employees actually worked 2,500

hours at a total labor cost of $26,250 to make
2,000 parkas.
10-38
Labor Variances Summary

Standard Hours Actual Hours Actual Hours
× × ×
Standard Rate Standard Rate Actual Rate
2,400 hours 2,500 hours 2,500 hours
× × ×
$10.00 per hour $10.00 per hour $10.50 per hour
= $24,000 = $25,000 = $26,250
Efficiency variance Rate variance

$1,000 unfavorable $1,250 unfavorable
10-39

× × ×
× 1.2 hours ×per parka  2,000 ×
$10.00 per hour parkasper
$10.00 = 2,400
hour hours$10.50 per hour
= $24,000 = $25,000 = $26,250

10-40

× × ×
× × hours
$26,250  2,500 ×
$10.00 per hour = $10.50
$10.00per
perhour
hour $10.50 per hour
= $24,000 = $25,000 = $26,250

10-41
Labor Variances: Using the

Factored Equations
Labor efficiency variance
LEV = (AH × SR) – (SH × SR)
= SR (AH – SH)
= $10.00 per hour (2,500 hours – 2,400 hours)
= $10.00 per hour (100 hours)
= $1,000 unfavorable
Labor rate variance
LRV = (AH × AR) – (AH × SR)
= AH (AR – SR)
= 2,500 hours ($10.50 per hour – $10.00 per hour)
= 2,500 hours ($0.50 per hour)
10-42
Responsibility for Labor Variances

Production managers are Mix of skill levels
usually held accountable assigned to work tasks.
for labor variances
because they can
Level of employee
influence the:
motivation.
Quality of production
supervision.
Quality of training
provided to employees.
Production Manager
10-43
Responsibility for Labor Variances

I think it took more time
to process the
I am not responsible for materials because the
the unfavorable labor Maintenance
efficiency variance! Department has poorly
maintained your
You purchased cheap equipment.
material, so it took more
time to process it.
10-44
Hanson Inc. has the following direct labor

standard to manufacture one Zippy:
1.5 standard hours per Zippy at
$12.00 per direct labor hour
Last week, 1,550 direct labor hours were
worked at a total labor cost of $18,910
to make 1,000 Zippies.
10-45
Hanson’s labor efficiency variance (LEV)

for the week was:
b. $590 favorable.
d. $600 favorable.
10-46
Hanson’s labor efficiency variance (LEV)

for the week was:
b. $590 favorable.
d. $600 favorable.
LEV = SR(AH - SH)
LEV = $12.00(1,550 hrs - 1,500 hrs)
LEV = $600 unfavorable
10-47
Hanson’s labor rate variance (LRV) for the

week was:
b. $310 favorable.
d. $300 favorable.
10-48
Hanson’s labor rate variance (LRV) for the

week was:
b. $310 favorable.
LRV = AH(AR - SR)
LRV = 1,550 hrs($12.20 - $12.00)
d. $300 favorable.LRV = $310 unfavorable
10-49

× × ×
× × ×
= $18,000 = $18,600 = $18,910

$600 unfavorable $310 unfavorable
10-50
Compute the variable

manufacturing overhead
efficiency and rate
variances and explain
their significance.
10-51
Variable Manufacturing Overhead

Variances – An Example
variable manufacturing overhead labor standard
for its mountain parka.
1.2 standard hours per parka at $4.00 per hour
Last month, employees actually worked 2,500
hours to make 2,000 parkas. Actual variable
manufacturing overhead for the month was
$10,500.
10-52

Variances Summary
× × ×
× × ×
= $9,600 = $10,000 = $10,500

10-53

Variances Summary
× × ×
× 1.2 hours ×per parka  2,000 ×
$4.00 per hour $4.00 per
parkas hour hours $4.20 per hour
= 2,400
= $9,600 = $10,000 = $10,500

10-54

Variances Summary
× × ×
× ×
$10,500  2,500 hours ×
$4.00 per hour $4.00 per
= $4.20 per hour
hour $4.20 per hour
= $9,600 = $10,000 = $10,500

10-55

Variances: Using Factored Equations
Variable manufacturing overhead efficiency variance
VMEV = (AH × SR) – (SH – SR)
= SR (AH – SH)
= $4.00 per hour (2,500 hours – 2,400 hours)
= $4.00 per hour (100 hours)
= $400 unfavorable
Variable manufacturing overhead rate variance
VMRV = (AH × AR) – (AH – SR)
= AH (AR – SR)
= 2,500 hours ($4.20 per hour – $4.00 per hour)
= 2,500 hours ($0.20 per hour)
= $500 unfavorable
10-56
Hanson Inc. has the following variable

manufacturing overhead standard to
manufacture one Zippy:
1.5 standard hours per Zippy at
$3.00 per direct labor hour
Last week, 1,550 hours were worked to make
1,000 Zippies, and $5,115 was spent for
variable manufacturing overhead.
10-57
Hanson’s efficiency variance (VMEV) for

variable manufacturing overhead for the week
was:
b. $435 favorable.
d. $150 favorable.
10-58
Hanson’s efficiency variance (VMEV) for

variable manufacturing overhead for the week
was:
b. $435 favorable. 1,000 units × 1.5 hrs per unit
d. $150 favorable.
VMEV = SR(AH - SH)
VMEV = $3.00(1,550 hrs - 1,500 hrs)
VMEV = $150 unfavorable
10-59
Hanson’s rate variance (VMRV) for variable

manufacturing overhead for the week was:
b. $400 favorable.
d. $300 favorable.
10-60
Hanson’s rate variance (VMRV) for variable

manufacturing overhead for the week was:
b. $400 favorable.
VMRV = AH(AR - SR)
VMRV = 1,550 hrs($3.30 - $3.00)
d. $300 favorable. VMRV = $465 unfavorable
10-61

× × ×
× × ×
= $4,500 = $4,650 = $5,115

10-62
Materials Variances―An Important

Subtlety
The quantity variance

is computed only on
the quantity used.
The price variance is
computed on the entire
quantity purchased.
10-63

Subtlety
materials standard for the fiberfill in its mountain
parka.
0.1 kg. of fiberfill per parka at $5.00 per kg.
Last month 210 kgs. of fiberfill were purchased at a

cost of $1,029. Glacier used 200 kgs. to make
2,000 parkas.
10-64

Subtlety
Standard Quantity Actual Quantity
× ×
Standard Price Standard Price
200 kgs. 200 kgs.
× ×
$5.00 per kg. $5.00 per kg.
= $1,000 = $1,000
Quantity variance
$0
10-65

Subtlety
Actual Quantity Actual Quantity
× ×
Standard Price Actual Price
210 kgs. 210 kgs.
× ×
$5.00 per kg. $4.90 per kg.
= $1,050 = $1,029
Price variance
$21 favorable
10-66
Variance Analysis and Management

by Exception
Larger variances, in
How do I know dollar amount or as
which variances to a percentage of the
investigate? standard, are
investigated first.
10-67
A Statistical Control Chart

Warning signals for investigation
Favorable Limit
• •
• • •
Desired Value
• •
Unfavorable Limit •
•
1 2 3 4 5 6 7 8 9
Variance Measurements
10-68
Advantages of Standard Costs
Management by Promotes economy

exception and efficiency
Advantages
Enhances
Simplified responsibility
bookkeeping accounting
10-69
Potential Problems with Standard

Costs
Emphasizing standards Favorable
may exclude other variances may
important objectives. be misinterpreted.
Potential
Problems
Standard cost Emphasis on
reports may negative may
not be timely. impact morale.
Invalid assumptions Continuous

about the relationship improvement may
between labor be more important
cost and output. than meeting standards.
Predetermined Overhead Rates
and Overhead Analysis in a
Standard Costing System
Appendix 10A
PowerPoint Authors:
10-71
(Appendix 10A)
Compute and interpret
the fixed overhead
volume and budget
variances.
10-72
Fixed Overhead Volume Variance

Fixed Budgeted Actual
Overhead Fixed Fixed
Applied Overhead Overhead
Volume
variance
Fixed
Budgeted
Volume overhead
= fixed –
variance applied to
overhead
work in process
10-73
Fixed Overhead Volume Variance

SH × FR DH × FR
Volume
variance
Volume variance = FPOHR × (DH – SH)
FPOHR = Fixed portion of the predetermined overhead rate

DH = Denominator hours
SH = Standard hours allowed for actual output
10-74
Fixed Overhead Budget Variance

Budget
variance
Actual Budgeted
Budget
= fixed – fixed
variance
overhead overhead
10-75
Computing Fixed Overhead Variances
ColaCo
Production and Machine-Hour Data
Budgeted production 30,000 units
Standard machine-hours per unit 3 hours
Budgeted machine-hours 90,000 hours
Actual production 28,000 units
Standard machine-hours allowed for the actual production 84,000 hours
Actual machine-hours 88,000 hours
10-76
Computing Fixed Overhead Variances
ColaCo
Cost Data
Budgeted variable manufacturing overhead $ 90,000
Budgeted fixed manufacturing overhead 270,000
Total budgeted manufacturing overhead $ 360,000
Actual variable manufacturing overhead $ 100,000

Actual fixed manufacturing overhead 280,000
Total actual manufacturing overhead $ 380,000
10-77

Predetermined Estimated total manufacturing overhead cost
=
overhead rate Estimated total amount of the allocation base
Predetermined $360,000
=
overhead rate 90,000 Machine-hours
Predetermined
= $4.00 per machine-hour
overhead rate
10-78

Variable component of the $90,000
=
predetermined overhead rate 90,000 Machine-hours
Variable component of the

predetermined overhead rate
Fixed component of the $270,000

=
predetermined overhead rate 90,000 Machine-hours
Fixed component of the

predetermined overhead rate
10-79
Applying Manufacturing Overhead
Overhead Predetermined Standard hours allowed

= ×
applied overhead rate for the actual output
Overhead $4.00 per

= × 84,000 machine-hours
applied machine-hour
Overhead
= $336,000
applied
10-80
Computing the Volume Variance

Fixed
Budgeted
Volume overhead
= fixed –
variance applied to
overhead
work in process
Volume
variance
= $270,000 – ( $3.00 per
machine-hour
×
$84,000
machine-hours )
Volume
= $18,000 Unfavorable
variance
10-81
Computing the Volume Variance

Volume variance = FPOHR × (DH – SH)
FPOHR = Fixed portion of the predetermined overhead rate

DH = Denominator hours
SH = Standard hours allowed for actual output
Volume
variance
=
$3.00 per
machine-hour
× ( 90,000
mach-hours
–
84,000
mach-hours )
Volume = 18,000 Unfavorable
variance
10-82
Computing the Budget Variance

Actual Budgeted
Budget
= fixed – fixed
variance
overhead overhead
Budget
= $280,000 – $270,000
variance
Budget
= $10,000 Unfavorable
variance
10-83
A Pictorial View of the Variances

Fixed Overhead Budgeted Actual
Applied to Fixed Fixed
Work in Process Overhead Overhead
252,000 270,000 280,000
Volume variance, Budget variance,

Total variance, $28,000 unfavorable

10-84
Fixed Overhead Variances –

A Graphic Approach
Let’s look at a
graph showing
fixed overhead
variances. We will
use ColaCo’s
numbers from the
previous example.
10-85
Graphic Analysis of Fixed

Overhead Variances
Budget
$270,000
at
li ed
p p u r
d a ho
e a a r d
e rh n d
o v s t a
e d e r
x
Fi .00 p Denominator
$3 hours
0
0 Machine-hours (000) 90
10-86

Overhead Variances
Actual
$280,000
Budget { Budget Variance 10,000 U
$270,000
at
li ed
p p u r
d a ho
e a a r d
e rh n d
o v s t a
e d e r
x
Fi .00 p Denominator
$3 hours
0
0 Machine-hours (000) 90
10-87

Overhead Variances
Actual
$280,000
Budget { Budget Variance 10,000 U
$270,000
Applied { Volume Variance 18,000 U
$252,000
at
li ed
p p u r
d a ho
e a a r d
e rh n d
o v s t a
e d e r
x
Fi .00 p Standard Denominator
$3 hours hours
0
0 Machine-hours (000) 84 90
10-88
Reconciling Overhead Variances and

Underapplied or Overapplied Overhead
In a standard
cost system:
Favorable
variances are equivalent
to overapplied overhead.
The sum of the overhead variances

equals the under- or overapplied
overhead cost for the period.
10-89
Reconciling Overhead Variances and

Underapplied or Overapplied Overhead
ColaCo
Computation of Underapplied Overhead
Predetermined overhead rate (a) $ 4.00 per machine-hour
Standard hours allowed for the actual output (b) 84,000 machine hours
Manufacturing overhead applied (a) × (b) $ 336,000
Actual manufacturing overhead $ 380,000
Manufacturing overhead underapplied or
overapplied $ 44,000 underapplied
10-90
Computing the Variable Overhead

Variances
Variable manufacturing overhead efficiency variance

VMEV = (AH × SR) – (SH × SR)
= $88,000 – (84,000 hours × $1.00 per hour)
10-91
Computing the Variable Overhead

Variances
Variable manufacturing overhead rate variance

VMRV = (AH × AR) – (AH × SR)
= $100,000 – (88,000 hours × $1.00 per hour)
10-92
Computing the Sum of All Variances
ColaCo
Computing the Sum of All variances
Variable overhead rate variance $ 12,000 U
Variable overhead efficiency variance 4,000 U
Fixed overhead budget variance 10,000 U
Fixed overhead volume variance 18,000 U
Total of the overhead variances $ 44,000 U
General
Journal Ledger
EntriesEntries to
to Record
Record Variances
Variances
Appendix 10B
PowerPoint Authors:
10-94
(Appendix 10B)
Prepare journal entries
to record standard
costs and variances.
10-95
Glacier Peak Outfitters ― Revisited

We will use information from the Glacier Peak Outfitters
example presented earlier in the chapter to illustrate journal
entries for standard cost variances. Recall the following:
Material Labor
AQ × AP = $1,029 AH × AR = $26,250
AQ × SP = $1,050 AH × SR = $25,000
SQ × SP = $1,000 SH × SR = $24,000
MPV = $21 F LRV = $1,250 U
MQV = $50 U LEV = $1,000 U
Now, let’s prepare the entries to record

the labor and material variances.
10-96
Recording Materials Variances

GENERAL JOURNAL Page 4
Post.
Date Description Ref. Debit Credit
Raw Materials 1,050
Materials Price Variance 21
Accounts Payable 1,029
To record the purchase of material
Work in Process 1,000

Materials Quantity Variance 50
Raw Materials 1,050
To record the use of material
10-97
Recording Labor Variances
GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Work in Process 24,000
Labor Rate Variance 1,250
Labor Efficiency Variance 1,000
Wages Payable 26,250
To record direct labor
10-98
Cost Flows in a Standard Cost System
Inventories are recorded at standard cost.

Variances are recorded as follows:
 Favorable variances are credits, representing
savings in production costs.
 Unfavorable variances are debits, representing
excess production costs.
Standard cost variances are usually closed out
to cost of goods sold.
 Unfavorable variances increase cost of goods sold.
 Favorable variances decrease cost of goods sold.
10-99
End of Chapter 10

Standard Costing

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Standard Costing

Uploaded by

Copyright:

Available Formats

Standard Costs and Variances

Quantity standards Price standards

Examples: Firestone, Sears, McDonald’s, hospitals,

Type of Product Cost

Variance Analysis Cycle

Setting Standard Costs

Engineer Managerial Accountant

Setting Direct Materials Standards

Final, delivered Summarized in

Setting Direct Labor Standards

Often a single Use time and

Setting Variable Manufacturing

The rate is the The quantity is

The Standard Cost Card

Using Standards in Flexible Budgets

Standard costs per unit for direct materials, direct

Spending variances become more

A General Model for Variance Analysis

Quantity Variance Price Variance

Difference between Difference between

Quantity and Price Standards

 The purchasing manager is responsible for raw

 The buying and using activities occur at different times.

A General Model for Variance Analysis

Quantity Variance Price Variance

Materials quantity variance Materials price variance

A General Model for Variance Analysis

(1) (2) (3)

Quantity Variance Price Variance

A General Model for Variance Analysis

(1) (2) (3)

Quantity Variance Price Variance

A General Model for Variance Analysis

(1) (2) (3)

Quantity Variance Price Variance

A General Model for Variance Analysis

(1) (2) (3)

Quantity Variance Price Variance

A General Model for Variance Analysis

(1) (2) (3)

Quantity Variance Price Variance

Compute the direct

Materials Variances – An Example

Glacier Peak Outfitters has the following direct

0.1 kg. of fiberfill per parka at $5.00 per kg.

Last month 210 kgs. of fiberfill were purchased and

Materials Variances Summary

Quantity variance Price variance

Materials Variances Summary

Quantity variance Price variance

Materials Variances Summary

Quantity variance Price variance

Materials price variance

Responsibility for Materials

Production Manager Purchasing Manager

The standard price is used to compute the quantity variance

Responsibility for Materials Variances

Production Manager Purchasing Manager

Quick Check  Zippy

Hanson Inc. has the following direct materials

Quick Check  Zippy

How many pounds of materials should

Quick Check  Zippy