ACCT 202, CH 10: Standard Costs & Variances

materials quantity variance

(actual quantity of materials used in production - standard quantity of materials allowed for the actual output) X standard price per unit of materials

quantity variance formula

(how much of an input was actually used - how much should of been used)= quantity variance. Stated in dollar terms using the standard price of the input

materials price variance

(input's actual price - its standard price) X the actual quantity purchased

standard hours allowed

(when computing DL and VMOH variances) is the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period

standard quantity allowed

(when computing DM variances) is the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period

If the actual level of activity is greater than the planned level of activity, the activity variances will be:

unfavorable

when: standard purchase price < actual purchase price.. the variance is

unfavorable

A quantity variance is calculated using the:

standard price of the input

standard cost per unit formula

standard quantity (or hours) per unit X standard price (or rate) per unit = standard cost per unit

standard direct materials cost per unit formula

standard quantity per unit X standard price per unit = standard direct materials cost per unit

In a standard cost system, overhead is applied on the basis of the ____ hours allowed for the ____ output of the period.

standard, actual

the volume variance is the error:

that occurs when the level of activity is estimated incorrectly

denominator activity

the est. total amount of the allocation base in the formula for predetermined overhead rate

standard cost per unit

the standard quantity allowed for an input per unit of a specific product X the standard price of the input

quantity variance

(AQ x SP) - (SQ x SP)

price variance formula

(actual amount paid for an input - standard amount that should have been paid) X actual amount of an input purchased = price variance

labor rate variance equation

(actual hourly rate - standard hourly rate) X actual number of hours worked during the period

labor efficiency variance equation

(actual hours used - standard hours allowed for actual output) X standard hourly rate

variable overhead efficiency variance equation

(actual level of activity - standard activity allowed for the actual output) X variable part of predetermined overhead rate

when setting direct labor standards:

-time and motion studies may be used -some companies use rates based on an expected mix of coworkers -the production manager should be consulted

what's used in calculating materials price variance

AP, AQ, and SP

T or F: A favorable labor rate variance is always favorable for a company.

False

T or F: The labor rate variance measures the productivity of direct labor.

False

formula for materials quantity variance

SP(AQ-SQ)

Advantages of standard cost system:

Simplify book keeping. Provide benchmarks that can be used by individuals to judge their own performance.

standard quantity allowed for actual output (formula)

Standard quantity allowed for actual output= actual output X standard quantity

T or F: The variable part of manufacturing overhead is analyzed using the same basic formulas for materials and labor.

True

standard hours allowed

the time that should have been taken to complete the period's output. actual number of units produced X standard hours per unit

T or F: There is no relationship between the volume variance and actual spending.

true

standard cost card

a detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product

The materials price variance is calculated using the ____ quantity of the input purchased.

actual

unfavorable quantity variance means:

actual amount of materials used > standard amount of materials allowed for the actual output of the period

budget variance

actual fixed overhead - budgeted fixed overhead

standard quantity allowed =

actual output X standard quantity

standard quantity allowed=

actual output X standard quantity

variable overhead rate variance equation

actual variable overhead cost incurred in the period - standard cost that should have been incurred based on the actual activity of the period

The variable overhead efficiency variance compares the _____ hours times the standard rate with the standard hours allowed for the actual output times the _____ rate.

actual, standard

standard hours per unit

amount of direct labor-hours that should be used to produce one unit of finished goods

standard quantity per unit

amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage

standard

benchmark for measuring performance

predetermined overhead rate includes:

both fixed and variable overhead

volume variance (short formula)

budgeted fixed overhead - fixed overhead applied to work in process

standard rate per hour

company's expected directed labor wage rate per hour, including employment taxes and fringe benefits

the standard quantity or hours and the standard price or rate required to produce a unit of a specific product is shown on a standard ___ ____.

cost card

the estimated amount of the allocation base used in the formula for the predetermined overhead rate is called the ____ activity.

denominator

standard VMOH cost per unit formula

direct labor-hours per unit X standard rate per hour = standard VMOH cost per unit

The difference between the actual hours and the standard hours allowed for the actual output is used in the calculation of the labor ____ variance.

efficiency

predetermined overhead rate=

est. total manufacturing overhead cost/est. total amount of the allocation base

volume variance (long formula)

fixed component of the predetermined overhead rate X (denominator hours - standard hours allowed for actual output)

quantity standards

how much of an input should be used to make a product or provide a service

price standards

how much should be paid for each unit of the input

excess inventory on hand, especially in the work in process inventory account, leads to:

increased defects, obsolete goods, inefficient operations

The _____ ______ application rate is calculated by dividing the estimated total manufacturing overhead cost by the estimated total amount of allocation base.

predetermined overhead

standard price per unit

price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials

manager responsible for controlling the labor efficiency variance:

production

what is used in the calculation of a standard price per unit of DM

purchase price of the DM, shipping costs, and purchase discounts

The materials price variance is computed when materials are _____ and the materials quantity variance is computed when materials are _____.

purchased, used

standards in acct relate to:

quantity and price

standard cost card

shows the standard quantity (or hours) and the standard price (or rate) of the inputs required to produce a unit of a specified product

standard direct labor cost per unit formula

standard hours per unit X standard rate per hour = standard direct labor cost per unit