Chapter 10: Standard Costs and Variances

Quantity variance

is the difference between how much of an input was actually used and how much should have been used stated in dollar terms using the standard price of input

Price variance =

price variance = (AQ x AP) - (AQ x SP)

Standard quantity allowed (DM) and Standard hours (DL and Variable MOH)

refers to the amount of input that should have been used to manufacture the actual output of finished goods produced during the period

Spending variances = in flexible budgets

spending variances = actual results - flexible budget unfavorable: actual total cost > standard cost = (+) favorable: actual total cost < standard cost = (-)

standard direct labor cost per unit =

standard direct labor cost per unit = (direct labor hours per unit) x (cost per direct labor hour)

Standard variable MOH cost per unit =

standard variable MOH cost per unit = (variable overhead per unit) x (variable overhead cost per unit)

setting variable MOH standards

the standard hours per unit for variable MOH measures the amount of allocation base from a company's predetermined overhead rate that is required to produce one unit of finished goods

Standard cost per unit =

Direct materials (standard quantity x standard rate) + Direct Labor (standard hours x standard rate) + Variable MOH (standard hours x standard rate) = Total standard cost per unit

Price variance =

Price variance = [(actual amount) - (standard amount)] x actual amount of input purchased

Quantity variance =

Quantity variance = (AQ x SP) - (SQ x SP)

Standard Direct Materials Cost Per Unit =

Standard direct materials cost per unit = (direct materials per unit) x (cost per direct materials)

Standard Price per Unit

defines the price that should be paid for each unit of direct materials

Total cost for the flexible budget =

Total cost for the flexible budget = actual output (or hours) x standard quantity (or hours) x standard price (or rate) per unit

Activity variances = in flexible budgets

activity variances = flexible budget - planning budget unfavorable: actual total cost > standard cost = (+) favorable: actual total cost < standard cost = (-)

Standard Hours per Unit

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

Standard Quantity per Unit

defines the amount of direct materials that should be used for each unit of the finished product

Standard rate per hour

defines the company's expected direct labor rate per hour