ACCT 2122 Chapter 10
A flexible budget performance report for variable manufacturing costs shows
Both the activity variances and spending variances
Quantity Standard
specify how much of an input should be used to make a product or provide a service.
Price Standard
specify how much should be paid for each unit of the input.
• The standard hours per unit reflects
the labor hours required to complete one unit of product
labor rate variance
is the difference between the actual average hourly wage and the standard hourly wage
Material Price variance computed on the entire quantity
purchased
Material Quantity variance computed
based on the quantity used in production
variable overhead rate
variance is the difference between the actual variable overhead costs incurred during the period and the standard cost that should have been incurred based on the actual activity of the period.
Spending Variance
(AH×AR)−(SH×SR)
Labor Rate Variance
AH(AR-SR)
Price Variance
AQ(AP − SP)
labor efficiency variance
AQxSR - SQxSR
Variable overhead efficiency variance
SR(AH-SH)
• The standard quantity per unit for direct materials should reflect the
amount of material required for each unit of finished product, as well as an allowance for unavoidable waste, spoilage, and other normal inefficiencies.
Standard hours allowed are
calculated as the standard hours allowed per unit times the actual output for the period.
The standard quantity allowed is...
computed by multiplying the actual number of units produced by the standard quantity per unit.
• The standard price per unit for direct materials should reflect the final
delivered cost of the materials.
• The standard rate per hour for direct labor includes
not only wages earned but also fringe benefits and other labor costs.
Zeta Corporation is a manufacturer of sports caps, which require soft fabric. The standards for each cap allow 2.00 yards of soft fabric, at a cost of $2.00 per yard. During the month of January, the company purchased 25,000 yards of soft fabric at $2.10 per yard, to produce 12,000 caps. What is Zeta Corporation's materials price variance for the month of January?
Price variance = AQ(AP − SP) = 25,000 yards ($2.10 per yard − $2.00 per yard) = $2,500 U Because the actual price is greater than the standard price, the materials price variance is unfavorable
The standard quantity per unit defines...
The 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
a benchmark for measuring performance. In managerial accounting, two types of standards are commonly used: Price Standard Quantity Standard
• The quantity standard for variable manufacturing overhead is expressed in
in either direct labor hours or machine hours depending on which is used as the allocation base in the predetermined overhead rate.
variable overhead efficiency variance
is the difference between the actual activity of a period and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate.
labor efficiency variance
is the difference between the actual quantity of labor hours and the quantity allowed according to the standard
materials quantity variance
is the difference between the quantity of materials used in production and the quantity that should have been used according to the standard.
materials price variance
is the difference between what is paid for a quantity of materials and what should have been paid according to the standard.
Assume that direct labor-hours are used as the overhead allocation base. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance
unfavorable
When computing variable manufacturing overhead variances, the standard rate represents the
variable portion of the predetermined overhead rate.
Most companies compute the materials price variance when raw materials are
when purchased materials are received from suppliers and transported to raw materials inventory rather than waiting to compute the price variance when the materials are withdrawn from raw materials inventory and used in production. Also, computing the price variance when the materials are purchased allows materials to be carried in the inventory accounts at their standard cost.
