Akaun Chapter 11

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  • 1. Chapter Eleven VARIANCE ANALYSIS AND STANDARD COSTING
  • 2. Outline
    • The usage of standard costing
    • Setting of standard cost and types of standard
    • Calculation of variance:
      • Direct material
      • Direct labor
      • Factory overhead
  • 3. Standard Costing  The cost that has been pre-determined after considering other factors.  Those are estimated costs which are considered to be ideal for each of the cost component ( direct material, direct labor and factory overhead ).  The standard cost system enable the management to determine how much a product should cost.
  • 4. The usage of standard costing  Planning and controlling:  Product costing:
    • Compare actual cost & budgeted cost
    • Improve performance
    • Increase efficiency
    • Provide readily available unit cost
    • information
  • 5. Setting of Standard Cost
    • Analysis on the historical cost experience:
        • Provide initial guidelines for standard setting
    • Engineering studies:
        • Determine the most efficient way to operate
    • Input from operating personnel:
        • Accountable for meeting the standards
    Involve joint efforts on:
  • 6. Types of Standards  Ideal standard  Normal standard
    • Maximum efficiency
    • Can be achieved if everything operates perfectly.
    • Currently attainable standard
    • Allowance is made for breakdown, interruptions etc..
  • 7. Variance Analysis  Variances are the difference between the actual manufacturing cost and the standard cost at the actual level of production.  The significance of the variance for each element in manufacturing cost needs further analysis to determine the corrective actions.
  • 8. Calculation of variance  Direct material  Direct labor  Factory overhead
  • 9. Standard Cost  The expected cost per unit product Illustration 1: The followings are the standard cost for each unit (bottle) of peanut butter produced by Syarikat Sedap Selalu :
  • 10. Standard Standard Standard Cost Price Usage RM Direct material: Peanut Butter Sugar Direct labor: Machine operator Packaging Factory OH: Variable costs Fixed costs Standard cost per unit 2.80/kg 0.15kg 0.42 2.70/kg 0.10kg 0.27 1.20/kg 0.25kg 0.30 0.99 4.00/hour 0.02hour 3.00/hour 0.01hour 0.08 0.03 0.11 5.00/hour 0.01hour 12.00/hour 0.01hour 0.05 0.12 0.17 1.27
  • 11. If Syarikat Sedap Selalu produces 10,000 bottles of peanut butter, the expected total cost would be: Direct material Direct labor Factory overhead Total cost 10,000 x 0.99 9,900 10,000 x 0.11 10,000 x 0.17 1,100 1,700 12,700
  • 12. Calculation of variance Cost element Actual cost Standard cost Variance Direct material Direct labor Factory overhead 9,900 1,100 1,700 9,500 400 (F) 1,050 50 (F) 2,000 300 (U) F = (Favorable) U = (Unfavorable)
  • 13. Direct Material Variance Direct Material Price Variance Direct Material Usage (Quantity) Variance  To measure the difference between the actual cost and the standard cost of direct materials.
  • 14. 1. Direct material price variance (Actual Price x Actual Quantity) - (Standard Price x Actual Quantity) Simplified to be: Actual Quantity (Actual Price – Standard Price) AQ ( AP – SP )
  • 15. 2. Direct material usage (quantity) variance (Standard Price x Actual Quantity) - (Standard Price x Standard Quantity) Simplified to be: Standard Price (Actual Quantity – Standard Quantity) SP ( AQ – SQ )
  • 16. Actual Price x Actual Qty Std Price x Actual Qty Std Price x Std Qty Price Variance Usage Variance Direct material variance
  • 17. Illustration 2 The followings are the actual price and quantity for direct material used by the company in producing 10,000 bottles of peanut butter: Actual Price Actual Quantity Peanut RM2.70/kg 1,400kg Butter RM2.505/kg 1,200kg Sugar RM1.18/kg 2,300kg
  • 18. Direct material price variance: Peanut: 1,400 (2.70 – 2.80) = 140 (F) Butter: 1,200 (2.505 – 2.70) = 234 (F) Sugar: 2,300 (1.18 – 1.20) = 46 (F) 420 (F) AQ ( AP – SP )
  • 19. Direct material usage variance: Peanut: 2.80 (1,400 – 1,500) = 280 (F) Butter: 2.70 (1,200 – 1,000) = 540 (U) Sugar: 1.20 (2,300 – 2,500) = 240 (F) 20 (U) Therefore , Total direct material variance = 420 (F) + 20 (U) = 400 (F) SP ( AQ – SQ )
  • 20. Direct Labor Variance Direct Labor Rate Variance Direct Labor Efficiency Variance  Measures the differences between the actual cost and the cost that suppose to be paid to the labor.
  • 21. 1. Direct Labor Rate Variance (Actual Hour x Actual Rate) - (Actual Hour x Standard Rate) Simplified to be: Actual Hour ( Actual Rate – Standard Rate ) AH ( AR – SR )
  • 22. 2. Direct Labor Efficiency Variance (Standard Rate x Actual Hour) - (Standard Rate x Standard Hour) Simplified to be: Standard Rate ( Actual Hour – Standard Hour ) SR ( AH – SH )
  • 23. Actual Hour x Actual Rate Std Hour x Actual Rate Std Hour x Std Rate Rate Variance Efficiency Variance Direct Labor Variance
  • 24. Illustration 3: The followings are actual rate and labor hour in the production of 10,000 bottles of peanut butter: Actual labor rate Actual labor hour Machine operator RM3.90/hour 190 hours Packaging RM2.81/hour 110 hours
  • 25. Direct Labor Rate Variance: Machine Operator: 190 (3.90 – 4.00 ) = 19 (F) Packaging: 110 (2.81 – 3.00) = 21 (F) 40 (F) AH ( AR – SR )
  • 26. Direct Labor Efficiency Variance: Machine Operator: 4.00 (190 – 200) = 40 (F) Packaging: 3.00 (110 – 100) = 30 (U) 10 (F) SR ( AH – SH ) Therefore, total direct labor variance: = 40 (M) + 10 (M) = 50 (M)
  • 27. Factory Overhead Variance Variable Factory Overhead Controllable Variance Fixed Factory Overhead Volume Variance  Measures the differences between the actual cost and the supposed related cost of factory overhead.
  • 28.
    • Total variable costs $14,400 $16,200 $18,000
    • Variable costs per hour $ 3.60 $ 3.60 $3.60
    • Total fixed costs $12,000 $12,000 $12,000
    • Fixed costs per hour $ 3.00 $ 2.67 $ 2.40
    • Total costs per hour $ 6.60 $ 6.27 $ 6.00
    Western Rider Inc. Factory Overhead Cost Budget For the Month Ended June 30, 2003 Direct Labor Hours 4,000 4,500 5,000 80% 90% 100% Overhead is applied at $6.00 per direct labor hour based on estimated 5,000 total hours. % of Normal Capacity
  • 29.
    • Variable costs $14,400 $10,400 $4,000 F
    • ($3.60 x 4,000 hours)
    • Fixed costs 9,600 12,000 2,400 U
    • ($2.40 x 4,000 hours)
    • Total costs $24,000 $22,400 $1,600 F
    Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Factory overhead applied at $6.00 per direct labor hour based on 4,000 actual hours . Actual factory overhead per general ledger. Actual Hour 4,000
  • 30.
    • Variable costs $14,400 $10,400 $4,000 F
    • ($3.60 x 4,000 hours)
    • Fixed costs 9,600 12,000 2,400 U
    • ($2.40 x 4,000 hours)
    • Total costs $24,000 $22,400 $1,600 F
    Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Controllable variance based on variable costs
  • 31.
    • Variable costs $14,400 $10,400 $4,000 F
    • ($3.60 x 4,000 hours)
    • Fixed costs 9,600 12,000 2,400 U
    • ($2.40 x 4,000 hours)
    • Total costs $24,000 $22,400 $1,600 F
    Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Volume variance based on fixed costs
  • 32.
    • Actual variable overhead $10,400
    • Budgeted variable overhead 14,400
    • (4,000 actual hours x $3.60)
    • Favorable controllable variance $(4,000)
    Variable Factory Overhead Controllable Variance For the Month Ended June 30, 2003 Controllable variance measures the efficiency of using variable overhead resources. A revised budget based on the actual hours used
  • 33.
    • Budgeted volume (direct labor hours) 5,000
    • Actual volume (direct labor hours) 4,000
    • Capacity not used (direct labor hours) 1,000
    • Standard fixed rate x $2.40
    • Unfavorable volume variance $2,400
    Fixed Factory Overhead Volume Variance For the Month Ended June 30, 2003 Volume variance measures the utilization of fixed overhead resources. Rate based on 5,000 direct labor hours.
  • 34. End of The Syllabus Good Luck For Your Final Exam