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# 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
• 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.