10TH Material :

STANDARD COSTING II

Horngren’s Cost Accounting 17/e, Datar/Rajan

 LEARNING OBJECTIVES

1. Compute 3 level analyses (summary of Level 1, 2, and 3 Variance

Analyses)
2. Understand Journal Entries Using Standard Costs
3. Management’s Use of Variances
4. Compute multiple inputs, different types of materials, the efficiency
variance : mix and yield variances.

Horngren’s Cost Accounting 17/e, Datar/Rajan

 SUMMARY OF LEVEL VARIANCE ANALYSES

1. Price and efficiency variances

2. The price variance and the efficiency variance subdivide the
flexible-budget variance
3. Individual line items of flexible budget variance :
a. Selling price variance
b. Direct materials variance
c. Direct manuf. labor variance
d. Variable manuf. overhead variance
e. Fixed manuf. overhead variance

Horngren’s Cost Accounting 17/e, Datar/Rajan

 SUMMARY OF LEVEL VARIANCE ANALYSES

Horngren’s Cost Accounting 17/e, Datar/Rajan

 FLEXIBLE-BUDGET VARIANCE

Direct
Materials
Variance = The Direct  Materials  Price Variance  + The Direct  Materials  Ef iciency Variance

= Direct  Manuf.  Labor    Price  Variance  + Direct  Manuf.  Labor  Ef iciency  Variance
Direct Manuf.
Labor Variance

Horngren’s Cost Accounting 17/e, Datar/Rajan

Horngren’s Cost Accounting 17/e, Datar/Rajan
Horngren’s Cost Accounting 17/e, Datar/Rajan
 FLEXIBLE-BUDGET VARIANCE

Horngren’s Cost Accounting 17/e, Datar/Rajan

 JOURNAL ENTRIES USING STANDARD COSTS

Horngren’s Cost Accounting 17/e, Datar/Rajan

 JOURNAL ENTRIES USING STANDARD COSTS

Horngren’s Cost Accounting 17/e, Datar/Rajan

 MANAGEMENT’S USE OF VARIANCES

1. To evaluate performance after decisions are implemented,

2. To trigger organization learning,
3. To make continuous improvements.
4. Variances serve as an early warning system to alert managers to
existing problems or to prospective opportunities.
5. When done well, variance analysis enables managers to evaluate
the effectiveness of the actions and performance of personnel in
the current period,
6. as well as to fine-tune strategies for achieving improved
performance in the future.

Horngren’s Cost Accounting 17/e, Datar/Rajan

 MIX AND YIELD VARIANCES FOR SUBSTITUTABLE
INPUTS

Continued Case

Horngren’s Cost Accounting 17/e, Datar/Rajan

 MIX AND YIELD VARIANCES FOR SUBSTITUTABLE
INPUTS

Horngren’s Cost Accounting 17/e, Datar/Rajan

Direct Manufacturing Labor Price And Efficiency Variances For Mode Company
For April 2020

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR MIX AND YIELD
VARIANCES

Managers sometimes have discretion to substitute one input for another.

The manager of Mode’s operations has some leeway in combining Low-,

Medium-, and High-skill workers without affecting the quality of the jackets.
We assume that to maintain quality, mix percentages of each type of labor can
only vary up to 5% from standard mix. For example, the percentage of Low-skill
labor in the mix can vary between 45% and 55% (50% +/- 5%).
When inputs are substitutable, direct manufacturing labor efficiency improvement
relative to budgeted costs can come from two sources:
(1) using a cheaper mix to produce a given quantity of output, measured by the
mix variance, and
(2) using less input to achieve a given quantity of output, measured by the yield
variance.

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR MIX AND YIELD
VARIANCES

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR MIX AND YIELD
VARIANCES

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR MIX VARIANCE

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR YIELD VARIANCE

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR YIELD VARIANCE

Horngren’s Cost Accounting 17/e, Datar/Rajan

 DIRECT MANUFACTURING LABOR YIELD VARIANCE

Horngren’s Cost Accounting 17/e, Datar/Rajan