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This is a short tutorial for Standard costing and variance analysis (MAS/COST ACCOUNTING)

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- 1. Standard costing short tutorial (MAS/COST)<br />NB: These are shortcut techniques; please refer to textbooks for basic knowledge. :)<br /> <br />Assumptions if the problem is silent:<br />VOH hours = DL hours<br />Actual quantity purchased = Actual quantity used<br />Actual Fixed OH = Budgeted Fixed OH<br />Normal capacity = Budgeted production<br /> <br />*If the given amount is 'per unit' then it is a standard.<br />*If the given amount is in 'total' then it is a budget.<br /> <br /><ul><li>A-A-S Formula (Can be used for Materials, Labor, and Variable Overhead)</li></ul> <br />Actual cost (AQ x AP) Price/Rate/Spending Variance<br />Actual Qty/hrs x Standard price/rate (AQ x SP)<br />Standard cost (SQ x SP) Quantity/Efficiency Variance<br /> <br />*Standard quantity- The quantity that should have been incurred for ACTUAL PRODUCTION. E.g. You actually produced 10,000 units and the standard 'materials' for such is 2kg per unit, the standard amount is 20,000 (10,000 x 2kg).<br /><ul><li>If Actual cost is greater than the “AQxSP” then it is UNFAVORABLE spending variance
- 2. If the “AQxSP” is greater than the standard cost, then it is UNFAVORABLE efficiency variance</li></ul>*Materials issue: What if Materials used in production ≠ Materials purchased<br />ANS: If the question is Materials price variance alone, use materials purchased. However, if the question is the Net Materials variance, use materials used in production.<br /><ul><li>A-B-S Formula (Can be used for Fixed Overhead)</li></ul>Fixed OH VarianceFixed Spending VarianceActual Fixed Overhead<br />Capacity/Volume VarianceBudgeted Fixed Overhead<br />Standard Fixed Overhead<br />*Same rules as above in case of standard cost/quantity. Budgeted fixed OH is usually given; else use actual hours/quantity.<br />*There is no “fixed efficiency variance” because fixed cost is not dependent on variable cost drivers.<br /><ul><li>3-way and 2-way analyses (for further explanation)</li></ul>-same computations as above, 3-way and 2-way are just compressed versions of the 4-way analysis. After getting the results from the 4 way analysis, you can now easily get the answers for 3-way and 2-way.<br />4-way analysis 3-way analysis 2-way analysis<br />Controllable VarianceOverhead Spending VarianceVariable Spending Variance<br />Efficiency VarianceFixed Spending Variance<br />Volume VarianceVariable Efficiency Variance<br />Volume Variance / Non-controllable varianceTotal Overhead VarianceVolume Variance<br />Sample Problem:<br /><ul><li>Materials and Labor Variances</li></ul>Help Me Company began operations in 2010. In 2011, the company manufactured only one product. The 2011 standard cost per unit is as follows:<br />Materials: two kilos of plastic at P2 P 4.00<br />Direct labor 1.6 hours at P4 6.40<br />Actual data for the month of December are as follows:<br />Production = 4,900 units<br />Materials purchased = 10,000 kilos at P1.90 per kilo<br />Materials used = 9,900 kilos<br />Direct labor = 8,000 hours at P4.10/hr<br />Reqd: Compute the Materials and Labor variances.<br />SUGGESTED SOLUTION:<br />MATERIALS<br />Materials Price variance: P1000 FActual cost of purchase: 10,000 x 1.90 = 19,000<br />AQ purchased x SP : 10,000 x 2.00 = 20,000<br />Materials Price variance: P990 FActual cost of used: 9,900 x 1.90 = 18,810<br />Materials Quantity variance: P200 UAQ used x SP: 9,900 x 2.00 = 19,800<br />Standard cost: 4,900 units x 2 kgs x 2 = 19,600<br />Total materials variance: P790 F<br />***Take note that there were two amounts for materials price variance. The first amount (P1000 F) will be the answer if the question is solely “Materials Price variance.” However, the second computation (P990 F) will be used if the question is “Total Materials variance.”<br />***The standard cost for materials was computed using the actual units produced. Remember, standard cost means the cost that should have been incurred for the actual production. <br />LABOR<br />Labor rate variance: P 800 UA: 8000 hrs x 4.10 = P 32,800<br />Labor efficiency variance: P 640 UA: 8000 hrs x 4.00 = 32,000<br />Total labor variance: P 1440 US: 7840 hrs x 4.00 = 31,360<br />*7,840 hrs: 4900 units multiplied by the standard hours per unit of 1.6hrs/unit.<br />2. Overhead variances<br />Don’t Worry Company applies variable overhead at a rate of P1.50 per direct labor hour and fixed overhead at a rate of P1.75 per direct labor hour. The company budgets two direct labor hours for each of the 5,900 units that are scheduled for production. Simon incurred actual variable overhead totaling P18,750 and actual fixed overhead totaling P21,500 last year for the production of 6000 units. In addition, 11,800 direct labor hours were actually incurred. <br />Reqd: Variable and fixed overhead variances.<br />SUGGESTED SOLUTION: <br />VARIABLE OVERHEAD<br />Variable spending variance: P 1,050 UActual cost: 18,750<br />Variable efficiency variance: P 300 FA (11,800 x 1.50): 17,700<br />Variable overhead variance: P 750 US (6000 x 2 x 1.50): 18,000<br />FIXED OVERHEAD<br />Fixed spending variance: P 850 UActual cost: 21,500<br />Volume variance: P 350 FBudgeted (5,900 x 2 x 1.75): 20,650<br />Fixed overhead variance: P500 UStandard (6000 x 2 x 1.75): 21,000<br />*Legend: <br />AQ = Actual quantity/hrs<br />AP = Actual price/rate<br />SQ = Standard quantity/hrs<br />SP = Standard price<br />U = Unfavorable<br />F = Favorable<br />PS: The questions were based from the handouts of CPAR for MAS Standard Costing and Variance Analysis.<br />Questions? PM me! <br />-adjustingentries.tumblr.com<br />

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