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F&ma 09
F&ma 09
DISCUSSION POINTS:
Standard Cost Systems – Introduction
NINE Variance Analysis Procedures
Establishing and Revising Standard Costs
Use of Standard Costs in Developing Budgets
Direct Material Standards
Direct Labor Standards
Manufacturing Overhead Standards
A General Model for Variance Analysis
Standard Costs and Variance Analysis: An
Illustration
Based on carefully
predetermined amounts.
Benchmarks for
measuring performance.
Standard cost
Amount
Direct
Material
Direct Manufacturing
Labor Overhead
Direct
Material
Direct Manufacturing
Labor Overhead
Take
Identify Receive corrective
questions explanations actions
Conduct next
Analyze period’s
variances operations
Prepare standard
Begin
cost performance
report
Production Managerial
Engineer manager Accountant
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(Establishing and Revising
Standard Costs, Cont’d)
Human
Resources
Manager
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9.4 Use of Standard Costs in Developing
Budgets
A standard is the
expected cost for one
Are standards the unit.
same as budgets? A budget is the
expected cost for all
units.
Price Quantity
Standards Standards
×
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9.8 A General Model for
Variance Analysis
AQ(AP
Materials price- SP)
variance SP(AQ
Materials - SQ)
quantity variance
Labor rate variance Labor efficiency variance
AQ =Variable
Actual overhead
Quantity SP = Standard
Variable Price
overhead
AP = spending
Actual Price
variance SQ = Standard
efficiency Quantity
variance
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
a. $170 unfavorable.
b. $170 favorable.
c. MPV = AQ(AP - SP)
$800 unfavorable.
MPV = 1,700 lbs. × ($3.90 - 4.00)
d. $800 favorable.
MPV = $170 favorable
a. 1,700 pounds.
b. 1,500 pounds.
c. 2,550 pounds.
d. 2,000 pounds.
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
Let’s turn
our
attention
to labor
variances.
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Standard Costs and Variance Zippy
Analysis: An Illustration
Hanson Inc. has the following labor
standard to manufacture one Zippy:
1.5 standard hours per Zippy at $8.00 per hour
AH(AR
Materials price- SR)
variance SR(AH
Materials - SH)
quantity variance
Labor rate variance Labor efficiency variance
AH = Actual
Variable Hours
overhead SRVariable
= Standard Rate
overhead
AR = Actual
spending Rate
variance SHefficiency
= Standard Hours
variance
a. $290 unfavorable.
b. $290 favorable.
c. $400 unfavorable.
d. $400 favorable.
a. $290 unfavorable.
b. $290 favorable.
LRV = AH(AR - SR)
c. LRV = 1,450 hrs($8.20 - $8.00)
$400 unfavorable.
LRV = $290 unfavorable
d. $400 favorable.
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
a. $290 unfavorable.
b. $290 favorable.
c. $400 unfavorable.
d. $400 favorable.
Unfavorable
Efficiency
Variance
Poor Poorly
supervision maintained
of workers equipment
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Responsibility for Labor Variances
Overhead Rate
Budgeted Applied
Actual Overhead at Overhead at
Overhead Actual Activity Standard Hours
Spending Volume
Variance Variance
Budgeted Applied
Actual Overhead at Overhead at
Overhead Actual Activity Standard Hours
Shows how economically
overhead services were
Spending Volume
purchased and how
Variance efficiently overhead
Variance
services were used.
Contains both fixed
and variable costs.
A controllable variance.
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Manufacturing Overhead Variances
Budgeted Applied
Actual Overhead at Overhead at
Overhead Actual Activity Standard Hours
CausedSpending
by producing at Volume
a levelVariance
other than that Variance
used for computing the
standard overhead rate.
Contains only fixed costs.
Budgeted Applied
Actual Overhead at Overhead at
Overhead Standard Hours Standard Hours
$15,450 $9,000 fixed 3,200 hrs.
+ ×
$6,400 variable $5.00 per hr.
Budgeted Applied
Actual Overhead at Overhead at
Overhead Standard Hours Standard Hours
$15,450 $9,000 fixed 3,200 hrs.
+ ×
$6,400 variable $5.00 per hr.
$15,450 $15,400 $16,000
Close to Close by
Cost of Goods Sold apportioning to:
Work in Process
Finished Goods
Cost of Goods Sold.
Possible reductions
in production costs.
Emphasis on negative
exceptions may
lead to under-reporting.
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JIT Systems and Variance Analysis
Emphasis on quality
reduces material
quantity variances.