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Understanding Standard Costing and Direct Cost Analysis

School
Capistrano Valley High**We aren't endorsed by this school
Course
MATH 2112
Subject
Accounting
Date
Dec 12, 2024
Pages
41
Uploaded by DeanFog7866
CHAPTERS 10 & 11BStandard Costing and Analysis of Direct CostsSales Variances (chapter 11-Appendix B)Prof Layton1
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Managing CostsProf Layton2StandardcostActualcostComparison betweenstandard and actualperformancelevelCostvarianceCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Management by ExceptionProf Layton3DirectMaterialManagers focus on quantities and coststhat exceed standards, a practice known asmanagement by exception.. Type of Product CostAmountDirectLaborStandardCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Setting StandardsProf Layton4Analysis ofHistorical DataTaskAnalysisCostStandardsCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Who sets standards?Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations.
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Perfection versus Practical Standards: A Behavioral IssueProf Layton5Question: Should we use practical (attainable) standards or perfection standards?Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Perfection standards are unattainable and therefore discouraging to most employees.Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.
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Standard CostVariancesCost Variance AnalysisProf Layton6QuantityVariancePrice VarianceThe difference betweenthe actual price and thestandard price.The difference betweenthe actual quantity andthe standard quantity.Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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A General Model for Variance Analysis 1/3Prof Layton7Actual Quantity Actual Quantity Standard Quantity×××Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceMaterials price variance Materials quantity varianceLabor rate variance Labor efficiency varianceVariable overhead Variable overhead spending variance efficiency variance AQ(AP SP) SP(AQ SQ)AQ = Actual Quantity SP = Standard PriceAP = Actual Price SQ = Standard QuantityCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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A General Model for Variance Analysis 2/3 Prof Layton8Actual Quantity Actual QuantityStandard Quantity× × × Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceStandard price is the amount that should have been paid for the resources acquired.Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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A General Model for Variance Analysis 3/3 Prof Layton9Actual Quantity Actual QuantityStandard Quantity× × × Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceStandard quantity is the quantity that should have been used. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson Inc. has the following direct material standard to manufacture one Zippy:1.5 pounds per Zippy at $4.00 per poundLast week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Prof Layton10Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesWhat is the actual price per poundpaid for the material? a.$4.00 per pound.b.$4.10 per pound.c.$3.90 per pound.d.$6.63 per pound.Prof Layton11Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesWhat is the actual price per poundpaid for the material? a.$4.00 per pound.b.$4.10 per pound.c.$3.90 per pound.d.$6.63 per pound.Prof Layton12AP = $6,630 ÷ 1,700 lbs.AP = $3.90 per lb. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson’s direct-material price variance (MPV)for the week was:a.$170 unfavorable.b.$170 favorable.c.$800 unfavorable.d.$800 favorable.Prof Layton13Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson’s direct-material price variance (MPV) for the week was:a.$170 unfavorable.b.$170 favorable.c.$800 unfavorable.d.$800 favorable.Prof Layton14MPV = AQ(AP SP)MPV = 1,700 lbs. × ($3.90 4.00)MPV = $170 FavorableCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material Variances The standard quantity of material thatshould have been used to produce1,000 Zippies is:a. 1,700 pounds.b. 1,500 pounds.c. 2,550 pounds.d. 2,000 pounds.Prof Layton15Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesThe standard quantity of material thatshould have been used to produce1,000 Zippies is:a. 1,700 pounds.b. 1,500 pounds.c. 2,550 pounds.d. 2,000 pounds.Prof Layton16SQ = 1,000 units × 1.5 lbs. per unitSQ = 1,500 lbs.Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson’s direct-material quantity variance (MQV) for the week was:a.$170 unfavorable.b.$170 favorable.c.$800 unfavorable.d.$800 favorable.Prof Layton17Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson’s direct-material quantity variance (MQV) for the week was:a.$170 unfavorable.b.$170 favorable.c. $800 unfavorable.d.$800 favorable.Prof Layton18Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.MQV = SP(AQ SQ)MQV = $4.00(1,700 lbs. 1,500 lbs.)MQV = $800 unfavorable
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Actual Quantity Actual QuantityStandard Quantity× × × Actual Price Standard Price Standard Price1,700 lbs. 1,700 lbs. 1,500 lbs.× × ×$3.90 per lb. $4.00 per lb. $4.00 per lb.$6,630 $ 6,800 $6,000 Price variance$170 favorableQuantity variance$800 unfavorableMaterial Variances SummaryProf Layton19Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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The price variance is computed on the entire quantity purchased.The quantity variance is computed only on the quantity used.Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? Material VariancesProf Layton20Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesHanson Inc. has the following material standard to manufacture one Zippy:1.5 pounds per Zippy at $4.00 per poundLast week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Prof Layton21Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Material VariancesProf Layton22Actual Quantity Actual Quantity Purchased Purchased× × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb.$10,920 $11,200Price variance$280 favorablePrice variance increases because quantity purchased increases.MPV = AQ(AP SP)MPV = 2,800 lbs. × ($3.90 $4.00)MPV = $280 FavorableCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Actual Quantity Used Standard Quantity × × Standard Price Standard Price1,700 lbs. 1,500 lbs.× ×$4.00 per lb. $4.00 per lb.$6,800 $6,000Quantity variance$800 unfavorableQuantity variance is unchanged because actual and standard quantities are unchanged.Material VariancesProf Layton23MQV = SP(AQ SQ)MQV = $4.00(1,700 lbs. 1,500 lbs.)MQV = $800 unfavor.10-23Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Labor Variance Analysis24Actual Hours Actual Hours Standard Hours×××Actual Rate Standard Rate Standard RateRate VarianceHours VarianceMaterials price variance Materials quantity varianceLabor rate variance Labor efficiency varianceVariable overhead Variable overhead rate variance efficiency variance AH(AR SR) SR(AH SH)AH = Actual Hours SR = Standard RateAR = Actual Rate SH = Standard Hours10-24Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Hanson Inc. has the following direct labor standard to manufacture one Zippy:1.5 standard hours per Zippy at $10.00 per direct labor hourLast week 1,550 direct labor hours were worked at a total labor cost of $15,810 to make 1,000 Zippies. Labor VariancesProf Layton25Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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What was Hanson’s actual rate (AR)for labor for the week?a.$10.20 per hour.b. $10.10 per hour.c.$9.90 per hour.d. $9.80 per hour.Labor VariancesProf Layton26Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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What was Hanson’s actual rate (AR)for labor for the week?a.$10.20 per hour.b. $10.10 per hour.c.$9.90 per hour.d. $9.80 per hour.Labor VariancesProf Layton27AR = $15,810 ÷ 1,550 hoursAR = $10.20 per hourCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Hanson’s labor rate variance (LRV)for the week was:a.$310 unfavorable.b.$310 favorable.c.$300 unfavorable.d.$300 favorable.Labor VariancesProf Layton28Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Hanson’s labor rate variance (LRV)for the week was:a.$310 unfavorable.b.$310 favorable.c.$300 unfavorable.d.$300 favorable.Labor VariancesProf Layton29LRV = AH(AR SR)LRV = 1,550 hrs. ($10.20 $10.00)LRV = $310 unfavorableCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:a.1,550 hours.b. 1,500 hours.c.1,700 hours.d. 1,800 hours.Labor VariancesProf Layton30Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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The standard hours (SH) of labor thatshould have been worked to produce1,000 Zippies is:a.1,550 hours.b. 1,500 hours.c.1,700 hours.d. 1,800 hours.Labor VariancesProf Layton31SH = 1,000 units × 1.5 hours per unitSH = 1,500 hoursCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Hanson’s labor efficiency variance (LEV)for the week was:a.$510 unfavorable.b.$510 favorable.c.$500 unfavorable.d.$500 favorable.Labor VariancesProf Layton32Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Hanson’s labor efficiency variance (LEV)for the week was:a.$510 unfavorable.b.$510 favorable.c.$500 unfavorable.d.$500 favorable.Labor VariancesProf Layton33LEV = SR(AH SH)LEV = $10.00(1,550 hrs. 1,500 hrs.)LEV = $500 unfavorableCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Actual Hours Actual HoursStandard Hours× × × Actual Rate Standard Rate Standard RateLabor Variances SummaryProf Layton34Rate variance$310 unfavorableEfficiency variance$500 unfavorable1,550 hours 1,550 hours 1,500 hours× × ×$10.20 per hour $10.00 per hour $10.00 per hour$15,810 $15,500 $15,000Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Controllability of VariancesProf Layton35Direct-Material Price VarianceDirect-Labor Rate VarianceDirect-Material Quantity VarianceDirect-Labor Efficiency VarianceCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Purchasing Manager?Production Supervisor?
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Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Interactions among variances can make it difficult to determine the responsibility for a particular variance.Example:A company makes a conscious decision to use a lower-grade raw material to save money, realizing that scrap and/or direct-labor costs might increase slightly. Should they do it??It will cause potentially an unfavorabledirect-labor efficiency variance and an unfavorabledirect-material quantity variance!!!!If the amount of the favorable direct-material price variance exceeds these however, the company may have made a wise decision.Interaction among VariancesProf Layton36
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Exercise 10-22Prof Layton37
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Exercise 10-33Prof Layton38
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A General Model for Variance Analysis Prof Layton39Actual Sales Volume Actual Sales VolumeBudgeted Sales Volume× × × Actual Sales Price Budgeted Sales Price Budgeted Sales PriceSales Price VarianceSales Volume VarianceASV(ASP − BSP) BSP(ASV − BSV)ASV = Actual Sales Volume BSP = Budgeted Sales PriceASP = Actual Sales Price BSV = Budgeted Sales Volume Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Exercise 11-34Prof Layton40The following data pertain to Aurora Electronics for the month of February.Static BudgetActualUnits sold10,0009,000Sales revenue$120,000$103,500Variable manufacturing cost40,00036,000Fixed manufacturing cost20,00020,000Variable selling & administrative cost. 10,0009,000Fixed selling & administrative cost10,00010,000Required:Compute the sales-price and sales-volume variances for February.
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Exercise 11-53Prof Layton41
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