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