ACCT 25
Labor Price Variances Occur
1. Paying workers different wages than expected 2. Misallocation of workers
Standard Hours
Hours that should have been worked for the units produced
Labor Price Variance Calculation
(Actual hours x actual rate) - (actual hours x standard rate)
Total Labor Variance Calculation
(Actual hours x actual rate) - (standard hours x standard rate)
Labor Quantity Variance Calculation
(Actual hours x standard rate) x (standard hours x standard rate)
Materials Price Variance Calculation
(Actual quantity x actual price) - (actual quantity x standard price)
Total Materials Variance Calculation
(Actual quantity x actual price) - (standard quantity x standard price)
Materials Quantity Variance Calculation
(Actual quantity x standard price) - (standard quantity x standard price)
Favorable
Actual costs are less than standard costs
Total Overhead Variance Calculation
Actual overhead - overhead applied
Actual Cost Calculation
Actual quantity x actual price
Variances
Differences between total actual costs and total standard costs
Learning and Growth Perspective
Evaluates how well the company develops and retains its employees - employee skill, satisfaction, training programs
Customer Perspective
Evaluates the company from the viewpoint of those people who buy its products or services - price, quality, product innovation, customer service
Internal Process Perspective
Evaluates the internal operating process critical to success - development, production, delivery
Balanced Scorecard
Incorporates financial and non financial measures in an integrated system that links performance measurement with a company's strategic goals
Other Calculation for Total Labor Variance
Labor price variance + labor quantity variance
Other Calculation for Total Materials Variance
Materials price variance + materials quantity variance
Total Variance Calculation
Materials variance + labor variance + overhead variance
Financial Perspective
Most traditional view of the company - employs financial measures of performance used by most firms
Standard Predetermined Overhead Rate Per Unit Calculation
Predetermined overhead rate x activity index quantity standard
Standard Costs
Predetermined unit costs which companies use as measures of performance
Direct Labor Price Standard
Rate per hour that should be incurred for direct labor
Normal Standards
Represent efficient levels of performance that are attainable under expected operating conditions
Ideal Standards
Represent optimum levels of performance under perfect operating conditions
Standard Direct Labor Cost Per Unit Calculation
Standard direct labor rate x standard direct labor hours
The Standard Direct Materials Cost Per Unit Calculation
Standard direct materials price x standard direct materials quantity
Standard Cost Calculation
Standard quantity x standard price
Distinguishing Between Standards and Budgets
Standards and budgets are predetermined costs. A standard is a unit amount. A budget is a total amount
Normal Capacity
The average activity output that a company should experience over the long run
Direct Materials Price Standard
The cost per unit of direct materials that should be incurred (cost of raw materials)
Direct Materials Quantity Standard
The quantity of direct materials that should be used per unit of finished goods
Direct Labor Quantity Standard
The time that should be required to make one unit of the product
Standard Predetermined Overhead Rate
Used for manufacturing overhead in setting the standard
Unfavorable
When actual costs exceed standard costs