Chapter 10 Standard Costs and Variances

Standard quantity allowed

The amount of an input that should have been used to complete the period's actual output. Computed by multiplying the actual number of units produced by the standard quantity per unit

Standard quantity per unit

The amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies

Standard hours per unit

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

Standard rate per hour

The company's expected direct labor wage rate per hour, including employment taxes and fringe benefits; Reflects the expected "mix" of workers

Standard price per unit

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

Standard cost per unit

The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input

Standard hours allowed

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

The planning budget column is based on the _____.

planned output of production

Formula for the standard variable manufacturing overhead per product:

Standard hours per unit X The variable portion of the predetermined overhead rate

Formula for the standard direct materials cost per product:

Standard quantity per unit X Standard price per unit

Calculating spending variances:

Taking the actual results column and subtracting the amounts in the flexible budget column Positive # = Unfavorable Negative # = Favorable

Calculating activity variances:

Taking the amounts in the flexible budget column and subtracting the amounts in the planing budget column Positive # = Unfavorable Negative # = Favorable

Price standards

Specify how much should be paid for each unit of the input

Standard cost variance analysis decomposes spending variances from the flexible budget into two elements:

1) One due to the price paid for the input 2) And the other due to the amount of the input that is used.

Standard

A benchmark for measuring performance

Formula for the standard direct labor cost per product

Standard hours per unit X Standard rate per hour

Materials price variance

Difference between an input's actual price and its standard price, multiplied by the actual quantity purchased. (AQ)(AP-SP) Purchasing manager is responsible

Quantity variance

Difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input. (SP)(AQ-SQ)

Price variance

Difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased. (AQ)(AP-SP)

Materials quantity variance

Difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials. (SP)(AQ-SQ)

Favorable price variance

Indicates that the actual price of the input was less than the standard price per unit

Unfavorable price variance

Indicates that the actual price per unit of the input was greater than the standard price per unit

Unfavorable quantity variance

Indicates that the actual quantity of the input used was greater than the standard quantity allowed

Favorable quantity variance

Indicates that the actual quantity of the input used was less than the standard quantity allowed

Standard cost card

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

Quantity standards

Specify how much of an input should be used to make a product or provide a service; Production manager's responsibility

All three columns in the exhibit are based on the ____ produced during the period.

actual amount of output

Actual results and flexible budget columns are each based on the _____.

actual output of production