Chapter 10

standard direct materials

quantity standard X price standard

Quantity standards

specify how much of an input should be used to make a product or provide a servicei ncluding an allowance for normal inefficiencies, such as scrap and spoilage

Standard Dl

standard hr per unit X standard rate per unit

quantity variance

the 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.(AQ-SQ)XSP. -materials quantity variance in the case of direct materials, a labor efficiency variance in the case of direct labor, and a variable overhead efficiency variance

Direct Materials Variances: The Equations-Based Approach (when the quantity of materials purchased does not equal the quantity used in production)

AQ(AP-SP) SP(AQ-SQ) AQ- WHAT IS ACTUALLY USED

standard hours per unit

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

standard rate per hour

defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits.

labor rate variance

measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period. (AR-SR)XAH

labor efficiency variance

measures the difference between the actual hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate.(AH-SH)xSR

Spending variance

(AQxAP)-(SQ-SP)

standard cost per unit

STANDARD VMO + standard dm + standard dl

standard VMO

The standard hours per unit for variable overhead measures the amount of the allocation base from a company's predetermined overhead rate that is required to produce one unit of finished goods. The standard rate per unit that a company expects to pay for variable overhead equals the variable portion of the predetermined overhead rate. VMO= those two equal to each other

standard

a benchmark for measuring performance.

The standard quantity allowed (when computing direct materials variances) or standard hours allowed (when computing direct labor and variable manufacturing overhead variances)

refers to the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period. It is computed by multiplying the actual output by the standard quantity (or hours) per unit. The standard quantity (or hours) allowed is then multiplied by the standard price (or rate) per unit of the input to obtain the total cost according to the flexible budget. For example, if a company actually produced 100 units of finished goods during the period and its standard quantity per unit of finished goods for direct materials is 3 pounds, then its standard quantity allowed (SQ) would be 300 pounds (= 100 units × 3 pounds per unit). If the company's standard cost per pound of direct materials is $2.00, then the total direct materials cost in its flexible budget would be $600 (= 300 pounds × $2.00 per pound).

Price standards

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

price variance

the 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(AP-SP)XAQ-materials price variance in the case of direct materials, a labor rate variance in the case of direct labor, and a variable overhead rate variance in the case of variable manufacturing overhead.