kim rae KI, profile picture
Uploaded bykim rae KI
PPTX, PDF1,401 views

Bab 12

- Standards are benchmarks used to measure performance in managerial accounting. Quantity standards specify the input amounts, while price standards specify input costs. - Direct material price and quantity variances are calculated to analyze differences between actual and standard costs. The price variance is the difference due to actual price paid, while the quantity variance is due to using more or less material than standard. - An example calculates variances for a company that used 210kg of fiberfill costing $1,029 total to make 2,000 parkas. The $21 favorable price variance and $50 unfavorable quantity variance are determined.

Embed presentation

Downloaded 61 times
1 / 123
2 / 123
3 / 123
4 / 123
Most read
5 / 123
Most read
6 / 123
7 / 123
8 / 123
9 / 123
10 / 123
11 / 123
12 / 123
Most read
13 / 123
14 / 123
15 / 123
16 / 123
17 / 123
18 / 123
19 / 123
20 / 123
21 / 123
22 / 123
23 / 123
24 / 123
25 / 123
26 / 123
27 / 123
28 / 123
29 / 123
30 / 123
31 / 123
32 / 123
33 / 123
34 / 123
35 / 123
36 / 123
37 / 123
38 / 123
39 / 123
40 / 123
41 / 123
42 / 123
43 / 123
44 / 123
45 / 123
46 / 123
47 / 123
48 / 123
49 / 123
50 / 123
51 / 123
52 / 123
53 / 123
54 / 123
55 / 123
56 / 123
57 / 123
58 / 123
59 / 123
60 / 123
61 / 123
62 / 123
63 / 123
64 / 123
65 / 123
66 / 123
67 / 123
68 / 123
69 / 123
70 / 123
71 / 123
72 / 123
73 / 123
74 / 123
75 / 123
76 / 123
77 / 123
78 / 123
79 / 123
80 / 123
81 / 123
82 / 123
83 / 123
84 / 123
85 / 123
86 / 123
87 / 123
88 / 123
89 / 123
90 / 123
91 / 123
92 / 123
93 / 123
94 / 123
95 / 123
96 / 123
97 / 123
98 / 123
99 / 123
100 / 123
101 / 123
102 / 123
103 / 123
104 / 123
105 / 123
106 / 123
107 / 123
108 / 123
109 / 123
110 / 123
111 / 123
112 / 123
113 / 123
114 / 123
115 / 123
116 / 123
117 / 123
118 / 123
119 / 123
120 / 123
121 / 123
122 / 123
123 / 123
© 2012 McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Standard Costs and Operating Performance Measures Chapter 12
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 2 Standard Costs Standards are benchmarks or “norms” for measuring performance. In managerial accounting, two types of standards are commonly used. Quantity standards specify how much of an input should be used to make a product or provide a service. Price standards specify how much should be paid for each unit of the input. Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 3 Standard Costs Direct Material Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception. Type of Product Cost Amount Direct Labor Manufacturing Overhead Standard
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 4 Variance Analysis Cycle Prepare standard cost performance report Analyze variances Begin Identify questions Receive explanations Take corrective actions Conduct next period’s operations
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 5 Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient future operations. Setting Standard Costs
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 6 Setting Standard Costs Should we use ideal standards that require employees to work at 100 percent peak efficiency? Engineer Managerial Accountant I recommend using practical standards that are currently attainable with reasonable and efficient effort.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 7 Learning Objective 1 Explain how direct materials standards and direct labor standards are set.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 8 Setting Direct Material Standards Price Standards Summarized in a Bill of Materials. Final, delivered cost of materials, net of discounts. Quantity Standards
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 9 Setting Standards Six Sigma advocates have sought to eliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste and spoilage that are built into standards should be reduced over time.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 10 Setting Direct Labor Standards Rate Standards Often a single rate is used that reflects the mix of wages earned. Time Standards Use time and motion studies for each labor operation.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 11 Setting Variable Manufacturing Overhead Standards Rate Standards The rate is the variable portion of the predetermined overhead rate. Quantity Standards The quantity is the activity in the allocation base for predetermined overhead.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 12 Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this: A A x B Standard Standard Standard Quantity Price Cost Inputs or Hours or Rate per Unit Direct materials 3.0 lbs. 4.00$ per lb. 12.00$ Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost 54.50$ B
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 13 Price and Quantity Standards Price and quantity standards are determined separately for two reasons:  The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.  The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 14 A General Model for Variance Analysis Variance Analysis Price Variance Difference between actual price and standard price Quantity Variance Difference between actual quantity and standard quantity
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 15 Variance Analysis Materials price variance Labor rate variance VOH rate variance Materials quantity variance Labor efficiency variance VOH efficiency variance A General Model for Variance Analysis Price Variance Quantity Variance
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 16 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 17 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Actual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 18 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Standard quantity is the standard quantity allowed for the actual output of the period.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 19 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Actual price is the amount actually paid for the input used.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 20 A General Model for Variance Analysis Standard price is the amount that should have been paid for the input used. Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 21 A General Model for Variance Analysis (AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 22 Another Way to Look at the Problems Actual Quantity x Actual Price = AQ x AP Price variance Actual Quantity x Standard Price = AQ x SP Quantity variance Standard Quantity x Standard Price = SQ x SP Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 23 Learning Objective 2 Compute the direct materials price and quantity variances and explain their significance.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 24 Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka. 0.1 kg. of fiberfill per parka at $5.00 per kg. Last month 210 kgs. of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029. Material Variances – An Example
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 25 Material Variances: The Line-by-line Method AQ x AP = 210 x AP = 1,029 (21) F Price variance AQ x SP = 210 x 5 = 1,050 50 U Quantity variance SQ x SP = (2000 x 0.1) x 5 = 1,000 29 U Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output Calculation of Actual Purchase Price (AP) per unit can be done but is not necessary because AP will not be used in subsequent calculation and the total actual purchase cost in total is sufficient for the variance calculation.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 26 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Material Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 27 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price $1,029  210 kgs = $4.90 per kg Material Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 28 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price 0.1 kg per parka  2,000 parkas = 200 kgs Material Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 29 Material Variances: Using the Factored Equations Materials price variance MPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 F Materials quantity variance MQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka  2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 U
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 30 Isolation of Material Variances I need the price variance sooner so that I can better identify purchasing problems. You accountants just don’t understand the problems that purchasing managers have. I’ll start computing the price variance when material is purchased rather than when it’s used.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 31 Material Variances Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 32 Materials Price VarianceMaterials Quantity Variance Production Manager Purchasing Manager The standard price is used to compute the quantity variance so that the production manager is not held responsible for the purchasing manager’s performance. Responsibility for Material Variances
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 33 I am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it. Your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. Responsibility for Material Variances
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 34 Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 35 Quick Check  AQ x AP = 1,700 x AP = 6,630 (170) F Price variance AQ x SP = 1,700 x 4 = 6,800 800 U Quantity variance SQ x SP = (1000 x 1.5) x 4 = 6,000 630 U Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 36 Quick Check  Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 37 Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 Favorable Quick Check  Zippy AQ x AP = 1,700 x AP = 6,630 (170) F Price variance AQ x SP = 1,700 x 4 = 6,800
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 38 Quick Check  Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 39 Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorable Quick Check  Zippy AQ x SP = 1,700 x 4 = 6,800 800 U Quantity variance SQ x SP = (1000 x 1.5) x 4 = 6,000
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 40 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. = $6,630 = $ 6,800 = $6,000 Price variance $170 favorable Quantity variance $800 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 41 Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Zippy Quick Check  Continued
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 42 Quick Check  Continued AQp x AP = 2,800 x AP = 10,920 (280) F Price variance AQp x SP = 2,800 x 4 = 11,200 4,400 U Inventory @ Std cost AQu x SP = 1,700 x 4 = 6,800 800 U Usage variance SQ x SP = (1000 x 1.5) x 4 = 6,000 (Quantity variance) 4,920 U Total Variance AQp = Actual Quantity Purchased AQu = Actual Quantity used SQ = (Aouput x standard quantity for production use) = standard quantity allowed for the actual output Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 43 Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb. = $10,920 = $11,200 Price variance $280 favorable Price variance increases because quantity purchased increases. Zippy Quick Check  Continued
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 44 Actual Quantity Used Standard Quantity × × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb. = $6,800 = $6,000 Quantity variance $800 unfavorable Quantity variance is unchanged because actual and standard quantities are unchanged. Zippy Quick Check  Continued
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 45 Learning Objective 3 Compute the direct labor rate and efficiency variances and explain their significance.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 46 Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas. Labor Variances – An Example
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 47 Labor Variances AH x AR = 2,500 x AR = 26,250 1,250 U Rate variance AH x SR = 2,500 x 10 = 25,000 1,000 U Efficiency variance SH x SR = (2000 x 1.2) x 10 = 24,000 2,250 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 48 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 49 Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate $26,250  2,500 hours = $10.50 per hour Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 50 Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 1.2 hours per parka  2,000 parkas = 2,400 hours Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 51 Labor Variances: Using the Factored Equations Labor rate variance LRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorable Labor efficiency variance LEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 52 Responsibility for Labor Variances Production Manager Production managers are usually held accountable for labor variances because they can influence the: Mix of skill levels assigned to work tasks. Level of employee motivation. Quality of production supervision. Quality of training provided to employees.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 53 I am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. I think it took more time to process the materials because the Maintenance Department has poorly maintained your equipment. Responsibility for Labor Variances
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 54 Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $12.00 per direct labor hour Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies. Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 55 Quick Check  AH x AR = 1,550 x AR = 18,910 310 U Rate variance AH x SR = 1,550 x 12 = 18,600 600 U Efficiency variance SH x SR = (1000 x 1.5) x 12 = 18,000 910 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 56 Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Quick Check  Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 57 Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Quick Check  LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) LRV = $310 unfavorable Zippy AH x AR = 1,550 x AR = 18,910 310 U Rate variance AH x SR = 1,550 x 12 = 18,600
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 58 Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Quick Check  Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 59 Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Quick Check  LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable Zippy AH x SR = 1,550 x 12 = 18,600 600 U Efficiency variance SH x SR = (1000 x 1.5) x 12 = 18,000
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 60 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Rate variance $310 unfavorable Efficiency variance $600 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour = $18,910 = $18,600 = $18,000 Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 61 Learning Objective 4 Compute the variable manufacturing overhead rate and efficiency variances.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 62 Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain parka. 1.2 standard hours per parka at $4.00 per hour Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for the month was $10,500. Variable Manufacturing Overhead Variances – An Example
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 63 Variable Manufacturing Overhead Variances AH x AR = 2,500 x AR = 10,500 500 U Rate variance AH x SR = 2,500 x 4 = 10,000 400 U Efficiency variance SH x SR = (2000 x 1.2) x 4 = 9,600 900 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 64 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Variable Manufacturing Overhead Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 65 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable $10,500  2,500 hours = $4.20 per hour Variable Manufacturing Overhead Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 66 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable 1.2 hours per parka  2,000 parkas = 2,400 hours Variable Manufacturing Overhead Variances Summary
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 67 Variable Manufacturing Overhead Variances: Using Factored Equations Variable manufacturing overhead rate variance VMRV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorable Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 68 Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy: 1.5 standard hours per Zippy at $3.00 per direct labor hour Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead. Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 69 Quick Check  AH x AR = 1,550 x AR = 5,115 465 U Rate variance AH x SR = 1,550 x 3 = 4,650 150 U Efficiency variance SH x SR = (1000 x 1.5) x 3 = 4,500 615 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 70 Hanson’s rate variance (VMRV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Quick Check  Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 71 Hanson’s rate variance (VMRV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Quick Check  VMRV = AH(AR - SR) VMRV = 1,550 hrs($3.30 - $3.00) VMRV = $465 unfavorable Zippy AH x AR = 1,550 x AR = 5,115 465 U Rate variance AH x SR = 1,550 x 3 = 4,650
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 72 Hanson’s efficiency variance (VMEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Quick Check  Zippy
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 73 Hanson’s efficiency variance (VMEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Quick Check  VMEV = SR(AH - SH) VMEV = $3.00(1,550 hrs - 1,500 hrs) VMEV = $150 unfavorable 1,000 units × 1.5 hrs per unit Zippy AH x SR = 1,550 x 3 = 4,650 150 U Efficiency variance SH x SR = (1000 x 1.5) x 3 = 4,500
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 74 Rate variance $465 unfavorable Efficiency variance $150 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Zippy Quick Check 
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 75 Variance Analysis and Management by Exception How do I know which variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 76 A Statistical Control Chart 1 2 3 4 5 6 7 8 9 Variance Measurements Favorable Limit Unfavorable Limit • • • • • • • • • Warning signals for investigation Desired Value
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 77 Advantages of Standard Costs Management by exception Advantages Promotes economy and efficiency Simplified bookkeeping Enhances responsibility accounting
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 78 Potential Problems Emphasis on negative may impact morale. Emphasizing standards may exclude other important objectives. Favorable variances may be misinterpreted. Continuous improvement may be more important than meeting standards. Standard cost reports may not be timely. Invalid assumptions about the relationship between labor cost and output. Potential Problems with Standard Costs
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 79 Learning Objective 5 Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE).
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 80 Process time is the only value-added time. Delivery Performance Measures Wait Time Process Time + Inspection Time + Move Time + Queue Time Delivery Cycle Time Order Received Production Started Goods Shipped Throughput Time
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 81 Manufacturing Cycle Efficiency Value-added time Manufacturing cycle time = Wait Time Process Time + Inspection Time + Move Time + Queue Time Delivery Cycle Time Order Received Production Started Goods Shipped Throughput Time Delivery Performance Measures
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 82 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days. b. 0.2 days. c. 4.1 days. d. 13.4 days.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 83 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days. b. 0.2 days. c. 4.1 days. d. 13.4 days. Quick Check  Throughput time = Process + Inspection + Move + Queue = 0.2 days + 0.4 days + 0.5 days + 9.3 days = 10.4 days
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 84 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%. b. 1.9%. c. 52.0%. d. 5.1%.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 85 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%. b. 1.9%. c. 52.0%. d. 5.1%. Quick Check  MCE = Value-added time ÷ Throughput time = Process time ÷ Throughput time = 0.2 days ÷ 10.4 days = 1.9%
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 86 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time (DCT)? a. 0.5 days. b. 0.7 days. c. 13.4 days. d. 10.4 days.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 87 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time (DCT)? a. 0.5 days. b. 0.7 days. c. 13.4 days. d. 10.4 days. Quick Check  DCT = Wait time + Throughput time = 3.0 days + 10.4 days = 13.4 days
© 2012 McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report (Reconcile Actual Results to the Budgeted Figures) Supplementary Note
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 89 Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report (Reconcile Actual Results to the Budgeted Figures) Actual Quantity x Actual Price = AQ x AP Price variance Actual Quantity x Standard Price = AQ x SP Quantity variance Standard Quantity x Standard Price = SQ x SP Total Flexible Variance Activity Variance Budgeted Quantity x Standard Price = BQ x SP Static variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output BQ = Budgeted quantity
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 90 Performance Report for Variance Analysis: Recall Example from Chapter 11
© 2012 McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 12A
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 92 Learning Objective 6 (Appendix 12A) Compute and interpret the fixed overhead budget and volume variances.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 93 Fixed Manufacturing Overhead Variances: The Line-by-line method Actual Fixed Overhead Budget variance Budgeted Fixed Overhead = BH x SR (Spending variance) Volume variance Applied Fixed Overhead = SH x SR Total Variance BH = Budgeted hours (a.k.a. Denominator hours) SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 94 Budget variance Fixed Overhead Budget Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Budget variance Budgeted fixed overhead Actual fixed overhead = –
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 95 Volume variance Fixed Overhead Volume Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = –
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 96 FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FRDH × FR Fixed Overhead Volume Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Volume variance FPOHR × (DH – SH)= Volume variance
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 97 Computing Fixed Overhead Variances Budgeted production 30,000 units Standard machine-hour per unit 3 hours Budgeted machine-hour 90,000 hours Actual production 28,000 units Standard machine-hour allowed for the actual production 84,000 hours Actual machine-hour 88,000 hours Production and Machine-Hour Data ColaCo
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 98 Computing Fixed Overhead Variances Budgeted variable manufacturing overhead 90,000$ Budgeted fixed manufacturing overhead 270,000 Total budgeted manufacturing overhead 360,000$ Actual variable manufacturing overhead 100,000$ Actual fixed manufacturing overhead 280,000 Total actual manufacturing overhead 380,000$ ColaCo Cost Data
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 99 Predetermined Overhead Rates Predetermined overhead rate Estimated total manufacturing overhead cost Estimated total amount of the allocation base = Predetermined overhead rate $360,000 90,000 Machine-hour = Predetermined overhead rate = $4.00 per machine-hour
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 100 Predetermined Overhead Rates Variable component of the predetermined overhead rate $90,000 90,000 Machine-hour = Variable component of the predetermined overhead rate = $1.00 per machine-hour Fixed component of the predetermined overhead rate $270,000 90,000 Machine-hour = Fixed component of the predetermined overhead rate = $3.00 per machine-hour
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 101 Applying Manufacturing Overhead Overhead applied Predetermined overhead rate Standard hours allowed for the actual output = × Overhead applied $4.00 per machine-hour 84,000 machine-hour= × Overhead applied $336,000=
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 102 Fixed Manufacturing Overhead Variances Actual = = 280,000 10,000 U Budget variance Budgeted = = 270,000 18,000 U Volume variance SH x SR = (28000 x 3) x 3 = 252,000 28,000 U Total Underapplied overhead SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 103 Computing the Budget Variance Budget variance Budgeted fixed overhead Actual fixed overhead = – Budget variance = $280,000 – $270,000 Budget variance = $10,000 Unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 104 Computing the Volume Variance Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – Volume variance = $18,000 Unfavorable Volume variance = $270,000 – $3.00 per machine-hour( × $84,000 machine-hour )
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 105 Computing the Volume Variance FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output Volume variance FPOHR × (DH – SH)= Volume variance = $3.00 per machine-hour (× 90,000 machine-hour – 84,000 machine-hour) Volume variance = 18,000 Unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 106 A Pictorial View of the Variances Actual Fixed Overhead Fixed Overhead Applied to Work in Process Budgeted Fixed Overhead 252,000270,000280,000 Total variance, $28,000 unfavorable Budget variance, $10,000 unfavorable Volume variance, $18,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 107 Fixed Overhead Variances – A Graphic Approach Let’s look at a graph showing fixed overhead variances. We will use ColaCo’s numbers from the previous example.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 108 Graphic Analysis of Fixed Overhead Variances Machine-hours (000) Budget $270,000 90 Denominator hours 0 0
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 109 Graphic Analysis of Fixed Overhead Variances Actual $280,000 Machine-hours (000) Budget $270,000 90 Denominator hours 0 0 Budget Variance 10,000 U{
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 110 Actual $280,000 Applied $252,000 Machine-hours (000) Budget $270,000 Graphic Analysis of Fixed Overhead Variances 90840 0 Standard hours Denominator hours Budget Variance 10,000 U Volume Variance 18,000 U { {
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 111 Reconciling Overhead Variances and Underapplied or Overapplied Overhead In a standard cost system: Unfavorable variances are equivalent to underapplied overhead. Favorable variances are equivalent to overapplied overhead. The sum of the overhead variances equals the under- or overapplied overhead cost for the period.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 112 Reconciling Overhead Variances and Underapplied or Overapplied Overhead Predetermined overhead rate (a) 4.00$ per machine-hour Standard hours allowed for the actual output (b) 84,000 machine hours Manufacturing overhead applied (a) × (b) 336,000$ Actual manufacturing overhead 380,000$ Manufacturing overhead underapplied or overapplied 44,000$ underapplied Computation of Underapplied Overhead ColaCo
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 113 Variable Overhead Variances AH x AR = = 100,000 12,000 U Rate variance AH x SR = 88,000 x 1 = 88,000 4,000 U Efficiency variance SH x SR = 84,000 x 1 = 84,000 (= 28,000 x 3) 16,000 U Total Variance SR = Standard rate per hour = Total underapplied SH = (Aouput x standard hours for the production) variable overhead = standard hours allowed for the actual output
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 114 Computing the Variable Overhead Variances Variable manufacturing overhead rate variance VMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 115 Computing the Variable Overhead Variances Variable manufacturing overhead efficiency variance VMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorable
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 116 Computing the Sum of All Variances Variable overhead rate variance 12,000$ U Variable overhead efficiency variance 4,000 U Fixed overhead budget variance 10,000 U Fixed overhead volume variance 18,000 U Total of the overhead variances 44,000$ U Computing the Sum of All variances ColaCo
© 2012 McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Journal Entries to Record Variances Appendix 12B
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 118 Learning Objective 7 (Appendix 12B) Prepare journal entries to record standard costs and variances.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 119 Appendix 12B Journal Entries to Record Variances We will use information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal entries for standard cost variances. Recall the following: Material AQ × AP = $1,029 AQ × SP = $1,050 SQ × SP = $1,000 MPV = $21 F MQV = $50 U Labor AH × AR = $26,250 AH × SR = $25,000 SH × SR = $24,000 LRV = $1,250 U LEV = $1,000 U Now, let’s prepare the entries to record the labor and material variances.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 120 GENERAL JOURNAL Page 4 Date Description Post. Ref. Debit Credit Raw Materials 1,050 Materials Price Variance 21 Accounts Payable 1,029 To record the purchase of material Work in Process 1,000 Materials Quantity Variance 50 Raw Materials 1,050 To record the use of material Appendix 12B Recording Material Variances
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 121 GENERAL JOURNAL Page 4 Date Description Post. Ref. Debit Credit Work in Process 24,000 Labor Rate Variance 1,250 Labor Efficiency Variance 1,000 Wages Payable 26,250 To record direct labor Appendix 12B Recording Labor Variances
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 122 Cost Flows in a Standard Cost System Inventories are recorded at standard cost. Variances are recorded as follows:  Favorable variances are credits, representing savings in production costs.  Unfavorable variances are debits, representing excess production costs. Standard cost variances are usually closed out to cost of goods sold.  Unfavorable variances increase cost of goods sold.  Favorable variances decrease cost of goods sold.
McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 123 End of Chapter 12

More Related Content

PPT
Managerial Accounting Garrison Noreen Brewer Chapter 01Managerial Accounting ...
byAsif Hasan
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 01
byAsif Hasan
 
PDF
garrison18epptprologueppt-230816223612-14e8638a.pdf
byNoorudin Farzad
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 06
byAsif Hasan
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 09
byAsif Hasan
 
PPT
Standard Costing and Variance.ppt
byYusraShehzadi1
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 04
byAsif Hasan
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 03
byAsif Hasan
 
Managerial Accounting Garrison Noreen Brewer Chapter 01Managerial Accounting ...
byAsif Hasan
 
Managerial Accounting Garrison Noreen Brewer Chapter 01
byAsif Hasan
 
garrison18epptprologueppt-230816223612-14e8638a.pdf
byNoorudin Farzad
 
Managerial Accounting Garrison Noreen Brewer Chapter 06
byAsif Hasan
 
Managerial Accounting Garrison Noreen Brewer Chapter 09
byAsif Hasan
 
Standard Costing and Variance.ppt
byYusraShehzadi1
 
Managerial Accounting Garrison Noreen Brewer Chapter 04
byAsif Hasan
 
Managerial Accounting Garrison Noreen Brewer Chapter 03
byAsif Hasan
 

What's hot

PPT
Managerial Accounting Garrison Noreen Brewer Chapter 10
byAsif Hasan
 
PPTX
Bab 13
bykim rae KI
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 07
byAsif Hasan
 
PDF
Chapter_9_Flexible Budget and Performance Analysis.pdf
bychickenandpie
 
PPTX
Master Budget.pptx
byLayTekchhay2
 
PPTX
Bab 2
bykim rae KI
 
PPT
Ch.3 Capital Budget (2) (4).ppt
byMahmoud325541
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 02
byAsif Hasan
 
PPT
Chapter 5 Cost Behavior: Analysis and Use
byViệt Hoàng Dương
 
PPTX
Acc mgt noreen08 standard costs
byJudianto Nugroho
 
PPT
Chapter 6 Cost-Volume-Profit Relationships
byViệt Hoàng Dương
 
PPT
leverages
bySuresh Thengumpallil
 
PPTX
Activity based costing
bysachdevkkapil
 
PDF
Budgeting
byEngr. Carlo Senica, MBA, CPSM
 
PPTX
Chapter # 6 (Variable costing and segment reporting - Managerial Accounting ...
bysaimarao2211
 
PDF
| Managerial Accounting | Chapter 8 | Master Budgeting | Introduction to Mana...
byAhmad Hassan
 
PDF
PDF Kieso Intermediate Accounting chapter 12
bySafa444074
 
PPTX
Economic Presentation: Cost Theory and Analysis
byBilal Mughal
 
PPT
Managerial Accounting Garrison Noreen Brewer Chapter 05
byAsif Hasan
 
PPTX
Job costing
bySrimant Kumar
 
Managerial Accounting Garrison Noreen Brewer Chapter 10
byAsif Hasan
 
Bab 13
bykim rae KI
 
Managerial Accounting Garrison Noreen Brewer Chapter 07
byAsif Hasan
 
Chapter_9_Flexible Budget and Performance Analysis.pdf
bychickenandpie
 
Master Budget.pptx
byLayTekchhay2
 
Bab 2
bykim rae KI
 
Ch.3 Capital Budget (2) (4).ppt
byMahmoud325541
 
Managerial Accounting Garrison Noreen Brewer Chapter 02
byAsif Hasan
 
Chapter 5 Cost Behavior: Analysis and Use
byViệt Hoàng Dương
 
Acc mgt noreen08 standard costs
byJudianto Nugroho
 
Chapter 6 Cost-Volume-Profit Relationships
byViệt Hoàng Dương
 
leverages
bySuresh Thengumpallil
 
Activity based costing
bysachdevkkapil
 
Budgeting
byEngr. Carlo Senica, MBA, CPSM
 
Chapter # 6 (Variable costing and segment reporting - Managerial Accounting ...
bysaimarao2211
 
| Managerial Accounting | Chapter 8 | Master Budgeting | Introduction to Mana...
byAhmad Hassan
 
PDF Kieso Intermediate Accounting chapter 12
bySafa444074
 
Economic Presentation: Cost Theory and Analysis
byBilal Mughal
 
Managerial Accounting Garrison Noreen Brewer Chapter 05
byAsif Hasan
 
Job costing
bySrimant Kumar
 

Similar to Bab 12

PDF
chap10notes.pdf
byEllamae79
 
PPT
chap10notes.ppt
byEllamae79
 
PPT
GNChap010.ppt
byFarizZhafiri1
 
PDF
ch 9 Standard Costs and BSC.pdf
bykhawlamuseabd
 
PPTX
Topic 10_Variance Analaysis_Accounting.pptx
byREEPAANJUMKAMAL
 
PPTX
5-STANDARD-COSTS-AND-VARIANCE-ANALYSIS-B.pptx
bydryincome
 
PPT
chapter-10 Standard.ppt
bychickenandpie
 
PPT
sesi-7-standard-cost (1).ppt
byssuser899c98
 
PPTX
GROUP4_STANDARD COST & OPERATING BUDGET..pptx
bymarienecasem
 
PPTX
dsgDSsdsegegesgsegfStandard Costing.pptx
bymichaeljonescaie
 
PPT
Standard Costing System Accounting WHBM23.ppt
byNomanMaqsood10
 
PPT
Standrad costing
byFaltu Focat
 
DOC
Flexible budgets and basic variance analysis (DAC 203 Management Accounting)
byWarui Maina
 
PPTX
Managerial Accounting Project.pptx
byTeeshaGehaniJagdesh
 
PPT
standard Costing- Dr.Harry. Standard costing:A managerial control
byrifkisianiapr
 
PPT
Standard costing setting standards and analysis of variance
byQuaid-i-Azam University Islamabad
 
PDF
Management accounting chapter 12: Standard costs and variance analysis
byHianhNguyn79
 
PPTX
Standard cost, labor & material variance
byAwais052
 
PPTX
STANDARD+COSTING+2025+Session+1_PGDA.pptx
bydianetheron
 
PPT
economic development principles in business
byhosamnabil1
 
chap10notes.pdf
byEllamae79
 
chap10notes.ppt
byEllamae79
 
GNChap010.ppt
byFarizZhafiri1
 
ch 9 Standard Costs and BSC.pdf
bykhawlamuseabd
 
Topic 10_Variance Analaysis_Accounting.pptx
byREEPAANJUMKAMAL
 
5-STANDARD-COSTS-AND-VARIANCE-ANALYSIS-B.pptx
bydryincome
 
chapter-10 Standard.ppt
bychickenandpie
 
sesi-7-standard-cost (1).ppt
byssuser899c98
 
GROUP4_STANDARD COST & OPERATING BUDGET..pptx
bymarienecasem
 
dsgDSsdsegegesgsegfStandard Costing.pptx
bymichaeljonescaie
 
Standard Costing System Accounting WHBM23.ppt
byNomanMaqsood10
 
Standrad costing
byFaltu Focat
 
Flexible budgets and basic variance analysis (DAC 203 Management Accounting)
byWarui Maina
 
Managerial Accounting Project.pptx
byTeeshaGehaniJagdesh
 
standard Costing- Dr.Harry. Standard costing:A managerial control
byrifkisianiapr
 
Standard costing setting standards and analysis of variance
byQuaid-i-Azam University Islamabad
 
Management accounting chapter 12: Standard costs and variance analysis
byHianhNguyn79
 
Standard cost, labor & material variance
byAwais052
 
STANDARD+COSTING+2025+Session+1_PGDA.pptx
bydianetheron
 
economic development principles in business
byhosamnabil1
 

More from kim rae KI

PPTX
Bab 5
bykim rae KI
 
PPTX
Bab 4
bykim rae KI
 
PPTX
Bab 3
bykim rae KI
 
PPTX
Bab 11
bykim rae KI
 
PPTX
Bab 10
bykim rae KI
 
PPTX
Bab 1 (p3)
bykim rae KI
 
PPTX
Bab 1 (p2)
bykim rae KI
 
PPTX
Bab 1 (p1)
bykim rae KI
 
PPT
Equity part2
bykim rae KI
 
PPT
Equity part1
bykim rae KI
 
PPT
Current liabilities ppt
bykim rae KI
 
PPTX
Chapter4
bykim rae KI
 
PPTX
Chapter3
bykim rae KI
 
PPT
Chapter2 receivable edited2013
bykim rae KI
 
DOC
Sqqs1013 ch6-a122
bykim rae KI
 
DOC
Sqqs1013 ch5-a122
bykim rae KI
 
DOC
Sqqs1013 ch4-a112
bykim rae KI
 
DOC
Sqqs1013 ch3-a112
bykim rae KI
 
DOC
Sqqs1013 ch2-a122
bykim rae KI
 
DOC
Sqqs1013 ch1-a122
bykim rae KI
 
Bab 5
bykim rae KI
 
Bab 4
bykim rae KI
 
Bab 3
bykim rae KI
 
Bab 11
bykim rae KI
 
Bab 10
bykim rae KI
 
Bab 1 (p3)
bykim rae KI
 
Bab 1 (p2)
bykim rae KI
 
Bab 1 (p1)
bykim rae KI
 
Equity part2
bykim rae KI
 
Equity part1
bykim rae KI
 
Current liabilities ppt
bykim rae KI
 
Chapter4
bykim rae KI
 
Chapter3
bykim rae KI
 
Chapter2 receivable edited2013
bykim rae KI
 
Sqqs1013 ch6-a122
bykim rae KI
 
Sqqs1013 ch5-a122
bykim rae KI
 
Sqqs1013 ch4-a112
bykim rae KI
 
Sqqs1013 ch3-a112
bykim rae KI
 
Sqqs1013 ch2-a122
bykim rae KI
 
Sqqs1013 ch1-a122
bykim rae KI
 

Recently uploaded

PDF
Chapter 05 Drugs Acting on the Central Nervous System: Anticonvulsant (Antiep...
bySandeshSul
 
PPTX
How to Add an Icon in Systray in Odoo 18
byCeline George
 
PPTX
Fluorimetric Analysis- Theory, Instrumentation and Application
bySayali Powar
 
PDF
Judgement Regarding Land Acquisition Act not Applicable to Encroachers.pdf
byssuser9d8e4e
 
PDF
The Sheep and the Goat: Beckett’s Subversion of Divine Justice in Waiting for...
bysejadchokiya
 
PDF
AI Is a Tool, Not a Voice: Radio, Trust, and the Human Factor
byN.A. Shah Ansari
 
PDF
Conservation of Earthen Structures in India Preserving Traditional and Sustai...
byAman Kumar Singh
 
PPTX
Greengnorance Toolkit Module 6 Water Resources
byKarl Donert
 
PPTX
Greengnorance Toolkit Module 4 Active Mobility and Transport
byKarl Donert
 
PDF
Family and Marriage __ Sociology __ Jhasketan Kuanar __ NURSING VIBE ONLY .pdf
byJK NURSING VIBES ONLY JHASKETAN KUANAR
 
PDF
Pratishta Educational Society., Courses & Opportunities
byGanapathiVankudoth
 
PDF
How "Raiders of the Lost Ark" and "Ordinary People" Employ Non-Verbal Acting
by6x5csns4pn
 
PPTX
Q4_PPT MUSIC & ARTS 7 week 1-2, matatag curriculum
byZEN
 
PDF
BP502T Industrial Pharmacy I (Theory) UNIT– I (Part 1)
byRushi Mandali
 
PPTX
How to Change Shipping Label Size in Odoo 18 Inventory
byCeline George
 
PPTX
How to Manage Reservation Method in Odoo 18 Inventory
byCeline George
 
PDF
Chapter 05 Drugs Acting on the Central Nervous System: Anti-Depressant Drugs
bySandeshSul
 
PPTX
Types of counselling Directive, Non Directive, Eclectic Counselling
byPriya Sush
 
PPTX
Methods & Applications of Enzyme Immobilization Technique.pptx
byAnupkumar Sharma
 
PPTX
Math 8 Quarter 4 Week 3 PRIMARY DATA.pptx
byshahanieabbat3
 
Chapter 05 Drugs Acting on the Central Nervous System: Anticonvulsant (Antiep...
bySandeshSul
 
How to Add an Icon in Systray in Odoo 18
byCeline George
 
Fluorimetric Analysis- Theory, Instrumentation and Application
bySayali Powar
 
Judgement Regarding Land Acquisition Act not Applicable to Encroachers.pdf
byssuser9d8e4e
 
The Sheep and the Goat: Beckett’s Subversion of Divine Justice in Waiting for...
bysejadchokiya
 
AI Is a Tool, Not a Voice: Radio, Trust, and the Human Factor
byN.A. Shah Ansari
 
Conservation of Earthen Structures in India Preserving Traditional and Sustai...
byAman Kumar Singh
 
Greengnorance Toolkit Module 6 Water Resources
byKarl Donert
 
Greengnorance Toolkit Module 4 Active Mobility and Transport
byKarl Donert
 
Family and Marriage __ Sociology __ Jhasketan Kuanar __ NURSING VIBE ONLY .pdf
byJK NURSING VIBES ONLY JHASKETAN KUANAR
 
Pratishta Educational Society., Courses & Opportunities
byGanapathiVankudoth
 
How "Raiders of the Lost Ark" and "Ordinary People" Employ Non-Verbal Acting
by6x5csns4pn
 
Q4_PPT MUSIC & ARTS 7 week 1-2, matatag curriculum
byZEN
 
BP502T Industrial Pharmacy I (Theory) UNIT– I (Part 1)
byRushi Mandali
 
How to Change Shipping Label Size in Odoo 18 Inventory
byCeline George
 
How to Manage Reservation Method in Odoo 18 Inventory
byCeline George
 
Chapter 05 Drugs Acting on the Central Nervous System: Anti-Depressant Drugs
bySandeshSul
 
Types of counselling Directive, Non Directive, Eclectic Counselling
byPriya Sush
 
Methods & Applications of Enzyme Immobilization Technique.pptx
byAnupkumar Sharma
 
Math 8 Quarter 4 Week 3 PRIMARY DATA.pptx
byshahanieabbat3
 

Bab 12

  • 1.
    © 2012 McGraw-HillEducation (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Standard Costs and Operating Performance Measures Chapter 12
  • 2.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 2 Standard Costs Standards are benchmarks or “norms” for measuring performance. In managerial accounting, two types of standards are commonly used. Quantity standards specify how much of an input should be used to make a product or provide a service. Price standards specify how much should be paid for each unit of the input. Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies.
  • 3.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 3 Standard Costs Direct Material Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception. Type of Product Cost Amount Direct Labor Manufacturing Overhead Standard
  • 4.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 4 Variance Analysis Cycle Prepare standard cost performance report Analyze variances Begin Identify questions Receive explanations Take corrective actions Conduct next period’s operations
  • 5.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 5 Accountants, engineers, purchasing agents, and production managers combine efforts to set standards that encourage efficient future operations. Setting Standard Costs
  • 6.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 6 Setting Standard Costs Should we use ideal standards that require employees to work at 100 percent peak efficiency? Engineer Managerial Accountant I recommend using practical standards that are currently attainable with reasonable and efficient effort.
  • 7.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 7 Learning Objective 1 Explain how direct materials standards and direct labor standards are set.
  • 8.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 8 Setting Direct Material Standards Price Standards Summarized in a Bill of Materials. Final, delivered cost of materials, net of discounts. Quantity Standards
  • 9.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 9 Setting Standards Six Sigma advocates have sought to eliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste and spoilage that are built into standards should be reduced over time.
  • 10.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 10 Setting Direct Labor Standards Rate Standards Often a single rate is used that reflects the mix of wages earned. Time Standards Use time and motion studies for each labor operation.
  • 11.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 11 Setting Variable Manufacturing Overhead Standards Rate Standards The rate is the variable portion of the predetermined overhead rate. Quantity Standards The quantity is the activity in the allocation base for predetermined overhead.
  • 12.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 12 Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this: A A x B Standard Standard Standard Quantity Price Cost Inputs or Hours or Rate per Unit Direct materials 3.0 lbs. 4.00$ per lb. 12.00$ Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost 54.50$ B
  • 13.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 13 Price and Quantity Standards Price and quantity standards are determined separately for two reasons:  The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.  The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production.
  • 14.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 14 A General Model for Variance Analysis Variance Analysis Price Variance Difference between actual price and standard price Quantity Variance Difference between actual quantity and standard quantity
  • 15.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 15 Variance Analysis Materials price variance Labor rate variance VOH rate variance Materials quantity variance Labor efficiency variance VOH efficiency variance A General Model for Variance Analysis Price Variance Quantity Variance
  • 16.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 16 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis
  • 17.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 17 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Actual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.
  • 18.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 18 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Standard quantity is the standard quantity allowed for the actual output of the period.
  • 19.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 19 Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Actual price is the amount actually paid for the input used.
  • 20.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 20 A General Model for Variance Analysis Standard price is the amount that should have been paid for the input used. Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
  • 21.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 21 A General Model for Variance Analysis (AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
  • 22.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 22 Another Way to Look at the Problems Actual Quantity x Actual Price = AQ x AP Price variance Actual Quantity x Standard Price = AQ x SP Quantity variance Standard Quantity x Standard Price = SQ x SP Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output
  • 23.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 23 Learning Objective 2 Compute the direct materials price and quantity variances and explain their significance.
  • 24.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 24 Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka. 0.1 kg. of fiberfill per parka at $5.00 per kg. Last month 210 kgs. of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029. Material Variances – An Example
  • 25.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 25 Material Variances: The Line-by-line Method AQ x AP = 210 x AP = 1,029 (21) F Price variance AQ x SP = 210 x 5 = 1,050 50 U Quantity variance SQ x SP = (2000 x 0.1) x 5 = 1,000 29 U Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output Calculation of Actual Purchase Price (AP) per unit can be done but is not necessary because AP will not be used in subsequent calculation and the total actual purchase cost in total is sufficient for the variance calculation.
  • 26.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 26 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Material Variances Summary
  • 27.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 27 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price $1,029  210 kgs = $4.90 per kg Material Variances Summary
  • 28.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 28 210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg. = $1,029 = $1,050 = $1,000 Price variance $21 favorable Quantity variance $50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price 0.1 kg per parka  2,000 parkas = 200 kgs Material Variances Summary
  • 29.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 29 Material Variances: Using the Factored Equations Materials price variance MPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 F Materials quantity variance MQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka  2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 U
  • 30.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 30 Isolation of Material Variances I need the price variance sooner so that I can better identify purchasing problems. You accountants just don’t understand the problems that purchasing managers have. I’ll start computing the price variance when material is purchased rather than when it’s used.
  • 31.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 31 Material Variances Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used.
  • 32.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 32 Materials Price VarianceMaterials Quantity Variance Production Manager Purchasing Manager The standard price is used to compute the quantity variance so that the production manager is not held responsible for the purchasing manager’s performance. Responsibility for Material Variances
  • 33.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 33 I am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it. Your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. Responsibility for Material Variances
  • 34.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 34 Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Zippy Quick Check 
  • 35.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 35 Quick Check  AQ x AP = 1,700 x AP = 6,630 (170) F Price variance AQ x SP = 1,700 x 4 = 6,800 800 U Quantity variance SQ x SP = (1000 x 1.5) x 4 = 6,000 630 U Total Variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output Zippy
  • 36.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 36 Quick Check  Zippy Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.
  • 37.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 37 Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 Favorable Quick Check  Zippy AQ x AP = 1,700 x AP = 6,630 (170) F Price variance AQ x SP = 1,700 x 4 = 6,800
  • 38.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 38 Quick Check  Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Zippy
  • 39.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 39 Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorable Quick Check  Zippy AQ x SP = 1,700 x 4 = 6,800 800 U Quantity variance SQ x SP = (1000 x 1.5) x 4 = 6,000
  • 40.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 40 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. = $6,630 = $ 6,800 = $6,000 Price variance $170 favorable Quantity variance $800 unfavorable Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Zippy Quick Check 
  • 41.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 41 Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies. Zippy Quick Check  Continued
  • 42.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 42 Quick Check  Continued AQp x AP = 2,800 x AP = 10,920 (280) F Price variance AQp x SP = 2,800 x 4 = 11,200 4,400 U Inventory @ Std cost AQu x SP = 1,700 x 4 = 6,800 800 U Usage variance SQ x SP = (1000 x 1.5) x 4 = 6,000 (Quantity variance) 4,920 U Total Variance AQp = Actual Quantity Purchased AQu = Actual Quantity used SQ = (Aouput x standard quantity for production use) = standard quantity allowed for the actual output Zippy
  • 43.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 43 Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb. = $10,920 = $11,200 Price variance $280 favorable Price variance increases because quantity purchased increases. Zippy Quick Check  Continued
  • 44.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 44 Actual Quantity Used Standard Quantity × × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb. = $6,800 = $6,000 Quantity variance $800 unfavorable Quantity variance is unchanged because actual and standard quantities are unchanged. Zippy Quick Check  Continued
  • 45.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 45 Learning Objective 3 Compute the direct labor rate and efficiency variances and explain their significance.
  • 46.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 46 Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas. Labor Variances – An Example
  • 47.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 47 Labor Variances AH x AR = 2,500 x AR = 26,250 1,250 U Rate variance AH x SR = 2,500 x 10 = 25,000 1,000 U Efficiency variance SH x SR = (2000 x 1.2) x 10 = 24,000 2,250 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 48.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 48 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000
  • 49.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 49 Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate $26,250  2,500 hours = $10.50 per hour Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
  • 50.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 50 Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 1.2 hours per parka  2,000 parkas = 2,400 hours Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable
  • 51.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 51 Labor Variances: Using the Factored Equations Labor rate variance LRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorable Labor efficiency variance LEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorable
  • 52.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 52 Responsibility for Labor Variances Production Manager Production managers are usually held accountable for labor variances because they can influence the: Mix of skill levels assigned to work tasks. Level of employee motivation. Quality of production supervision. Quality of training provided to employees.
  • 53.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 53 I am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. I think it took more time to process the materials because the Maintenance Department has poorly maintained your equipment. Responsibility for Labor Variances
  • 54.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 54 Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $12.00 per direct labor hour Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies. Zippy Quick Check 
  • 55.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 55 Quick Check  AH x AR = 1,550 x AR = 18,910 310 U Rate variance AH x SR = 1,550 x 12 = 18,600 600 U Efficiency variance SH x SR = (1000 x 1.5) x 12 = 18,000 910 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 56.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 56 Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Quick Check  Zippy
  • 57.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 57 Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. Quick Check  LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) LRV = $310 unfavorable Zippy AH x AR = 1,550 x AR = 18,910 310 U Rate variance AH x SR = 1,550 x 12 = 18,600
  • 58.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 58 Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Quick Check  Zippy
  • 59.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 59 Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. Quick Check  LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable Zippy AH x SR = 1,550 x 12 = 18,600 600 U Efficiency variance SH x SR = (1000 x 1.5) x 12 = 18,000
  • 60.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 60 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Rate variance $310 unfavorable Efficiency variance $600 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour = $18,910 = $18,600 = $18,000 Zippy Quick Check 
  • 61.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 61 Learning Objective 4 Compute the variable manufacturing overhead rate and efficiency variances.
  • 62.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 62 Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain parka. 1.2 standard hours per parka at $4.00 per hour Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for the month was $10,500. Variable Manufacturing Overhead Variances – An Example
  • 63.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 63 Variable Manufacturing Overhead Variances AH x AR = 2,500 x AR = 10,500 500 U Rate variance AH x SR = 2,500 x 4 = 10,000 400 U Efficiency variance SH x SR = (2000 x 1.2) x 4 = 9,600 900 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 64.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 64 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Variable Manufacturing Overhead Variances Summary
  • 65.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 65 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable $10,500  2,500 hours = $4.20 per hour Variable Manufacturing Overhead Variances Summary
  • 66.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 66 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance $500 unfavorable Efficiency variance $400 unfavorable 1.2 hours per parka  2,000 parkas = 2,400 hours Variable Manufacturing Overhead Variances Summary
  • 67.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 67 Variable Manufacturing Overhead Variances: Using Factored Equations Variable manufacturing overhead rate variance VMRV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorable Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable
  • 68.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 68 Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy: 1.5 standard hours per Zippy at $3.00 per direct labor hour Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead. Zippy Quick Check 
  • 69.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 69 Quick Check  AH x AR = 1,550 x AR = 5,115 465 U Rate variance AH x SR = 1,550 x 3 = 4,650 150 U Efficiency variance SH x SR = (1000 x 1.5) x 3 = 4,500 615 U Total Variance AH = Actual hour paid (and worked in this case) AR = Actual rate per hour SR = Standard rate per hour SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 70.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 70 Hanson’s rate variance (VMRV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Quick Check  Zippy
  • 71.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 71 Hanson’s rate variance (VMRV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. Quick Check  VMRV = AH(AR - SR) VMRV = 1,550 hrs($3.30 - $3.00) VMRV = $465 unfavorable Zippy AH x AR = 1,550 x AR = 5,115 465 U Rate variance AH x SR = 1,550 x 3 = 4,650
  • 72.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 72 Hanson’s efficiency variance (VMEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Quick Check  Zippy
  • 73.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 73 Hanson’s efficiency variance (VMEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. Quick Check  VMEV = SR(AH - SH) VMEV = $3.00(1,550 hrs - 1,500 hrs) VMEV = $150 unfavorable 1,000 units × 1.5 hrs per unit Zippy AH x SR = 1,550 x 3 = 4,650 150 U Efficiency variance SH x SR = (1000 x 1.5) x 3 = 4,500
  • 74.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 74 Rate variance $465 unfavorable Efficiency variance $150 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Zippy Quick Check 
  • 75.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 75 Variance Analysis and Management by Exception How do I know which variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first.
  • 76.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 76 A Statistical Control Chart 1 2 3 4 5 6 7 8 9 Variance Measurements Favorable Limit Unfavorable Limit • • • • • • • • • Warning signals for investigation Desired Value
  • 77.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 77 Advantages of Standard Costs Management by exception Advantages Promotes economy and efficiency Simplified bookkeeping Enhances responsibility accounting
  • 78.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 78 Potential Problems Emphasis on negative may impact morale. Emphasizing standards may exclude other important objectives. Favorable variances may be misinterpreted. Continuous improvement may be more important than meeting standards. Standard cost reports may not be timely. Invalid assumptions about the relationship between labor cost and output. Potential Problems with Standard Costs
  • 79.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 79 Learning Objective 5 Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE).
  • 80.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 80 Process time is the only value-added time. Delivery Performance Measures Wait Time Process Time + Inspection Time + Move Time + Queue Time Delivery Cycle Time Order Received Production Started Goods Shipped Throughput Time
  • 81.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 81 Manufacturing Cycle Efficiency Value-added time Manufacturing cycle time = Wait Time Process Time + Inspection Time + Move Time + Queue Time Delivery Cycle Time Order Received Production Started Goods Shipped Throughput Time Delivery Performance Measures
  • 82.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 82 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days. b. 0.2 days. c. 4.1 days. d. 13.4 days.
  • 83.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 83 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the throughput time? a. 10.4 days. b. 0.2 days. c. 4.1 days. d. 13.4 days. Quick Check  Throughput time = Process + Inspection + Move + Queue = 0.2 days + 0.4 days + 0.5 days + 9.3 days = 10.4 days
  • 84.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 84 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%. b. 1.9%. c. 52.0%. d. 5.1%.
  • 85.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 85 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%. b. 1.9%. c. 52.0%. d. 5.1%. Quick Check  MCE = Value-added time ÷ Throughput time = Process time ÷ Throughput time = 0.2 days ÷ 10.4 days = 1.9%
  • 86.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 86 Quick Check  A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time (DCT)? a. 0.5 days. b. 0.7 days. c. 13.4 days. d. 10.4 days.
  • 87.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 87 A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 days What is the delivery cycle time (DCT)? a. 0.5 days. b. 0.7 days. c. 13.4 days. d. 10.4 days. Quick Check  DCT = Wait time + Throughput time = 3.0 days + 10.4 days = 13.4 days
  • 88.
    © 2012 McGraw-HillEducation (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report (Reconcile Actual Results to the Budgeted Figures) Supplementary Note
  • 89.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 89 Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report (Reconcile Actual Results to the Budgeted Figures) Actual Quantity x Actual Price = AQ x AP Price variance Actual Quantity x Standard Price = AQ x SP Quantity variance Standard Quantity x Standard Price = SQ x SP Total Flexible Variance Activity Variance Budgeted Quantity x Standard Price = BQ x SP Static variance SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output BQ = Budgeted quantity
  • 90.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 90 Performance Report for Variance Analysis: Recall Example from Chapter 11
  • 91.
    © 2012 McGraw-HillEducation (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 12A
  • 92.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 92 Learning Objective 6 (Appendix 12A) Compute and interpret the fixed overhead budget and volume variances.
  • 93.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 93 Fixed Manufacturing Overhead Variances: The Line-by-line method Actual Fixed Overhead Budget variance Budgeted Fixed Overhead = BH x SR (Spending variance) Volume variance Applied Fixed Overhead = SH x SR Total Variance BH = Budgeted hours (a.k.a. Denominator hours) SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 94.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 94 Budget variance Fixed Overhead Budget Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Budget variance Budgeted fixed overhead Actual fixed overhead = –
  • 95.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 95 Volume variance Fixed Overhead Volume Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = –
  • 96.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 96 FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FRDH × FR Fixed Overhead Volume Variance Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Volume variance FPOHR × (DH – SH)= Volume variance
  • 97.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 97 Computing Fixed Overhead Variances Budgeted production 30,000 units Standard machine-hour per unit 3 hours Budgeted machine-hour 90,000 hours Actual production 28,000 units Standard machine-hour allowed for the actual production 84,000 hours Actual machine-hour 88,000 hours Production and Machine-Hour Data ColaCo
  • 98.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 98 Computing Fixed Overhead Variances Budgeted variable manufacturing overhead 90,000$ Budgeted fixed manufacturing overhead 270,000 Total budgeted manufacturing overhead 360,000$ Actual variable manufacturing overhead 100,000$ Actual fixed manufacturing overhead 280,000 Total actual manufacturing overhead 380,000$ ColaCo Cost Data
  • 99.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 99 Predetermined Overhead Rates Predetermined overhead rate Estimated total manufacturing overhead cost Estimated total amount of the allocation base = Predetermined overhead rate $360,000 90,000 Machine-hour = Predetermined overhead rate = $4.00 per machine-hour
  • 100.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 100 Predetermined Overhead Rates Variable component of the predetermined overhead rate $90,000 90,000 Machine-hour = Variable component of the predetermined overhead rate = $1.00 per machine-hour Fixed component of the predetermined overhead rate $270,000 90,000 Machine-hour = Fixed component of the predetermined overhead rate = $3.00 per machine-hour
  • 101.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 101 Applying Manufacturing Overhead Overhead applied Predetermined overhead rate Standard hours allowed for the actual output = × Overhead applied $4.00 per machine-hour 84,000 machine-hour= × Overhead applied $336,000=
  • 102.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 102 Fixed Manufacturing Overhead Variances Actual = = 280,000 10,000 U Budget variance Budgeted = = 270,000 18,000 U Volume variance SH x SR = (28000 x 3) x 3 = 252,000 28,000 U Total Underapplied overhead SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output
  • 103.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 103 Computing the Budget Variance Budget variance Budgeted fixed overhead Actual fixed overhead = – Budget variance = $280,000 – $270,000 Budget variance = $10,000 Unfavorable
  • 104.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 104 Computing the Volume Variance Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – Volume variance = $18,000 Unfavorable Volume variance = $270,000 – $3.00 per machine-hour( × $84,000 machine-hour )
  • 105.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 105 Computing the Volume Variance FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output Volume variance FPOHR × (DH – SH)= Volume variance = $3.00 per machine-hour (× 90,000 machine-hour – 84,000 machine-hour) Volume variance = 18,000 Unfavorable
  • 106.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 106 A Pictorial View of the Variances Actual Fixed Overhead Fixed Overhead Applied to Work in Process Budgeted Fixed Overhead 252,000270,000280,000 Total variance, $28,000 unfavorable Budget variance, $10,000 unfavorable Volume variance, $18,000 unfavorable
  • 107.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 107 Fixed Overhead Variances – A Graphic Approach Let’s look at a graph showing fixed overhead variances. We will use ColaCo’s numbers from the previous example.
  • 108.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 108 Graphic Analysis of Fixed Overhead Variances Machine-hours (000) Budget $270,000 90 Denominator hours 0 0
  • 109.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 109 Graphic Analysis of Fixed Overhead Variances Actual $280,000 Machine-hours (000) Budget $270,000 90 Denominator hours 0 0 Budget Variance 10,000 U{
  • 110.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 110 Actual $280,000 Applied $252,000 Machine-hours (000) Budget $270,000 Graphic Analysis of Fixed Overhead Variances 90840 0 Standard hours Denominator hours Budget Variance 10,000 U Volume Variance 18,000 U { {
  • 111.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 111 Reconciling Overhead Variances and Underapplied or Overapplied Overhead In a standard cost system: Unfavorable variances are equivalent to underapplied overhead. Favorable variances are equivalent to overapplied overhead. The sum of the overhead variances equals the under- or overapplied overhead cost for the period.
  • 112.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 112 Reconciling Overhead Variances and Underapplied or Overapplied Overhead Predetermined overhead rate (a) 4.00$ per machine-hour Standard hours allowed for the actual output (b) 84,000 machine hours Manufacturing overhead applied (a) × (b) 336,000$ Actual manufacturing overhead 380,000$ Manufacturing overhead underapplied or overapplied 44,000$ underapplied Computation of Underapplied Overhead ColaCo
  • 113.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 113 Variable Overhead Variances AH x AR = = 100,000 12,000 U Rate variance AH x SR = 88,000 x 1 = 88,000 4,000 U Efficiency variance SH x SR = 84,000 x 1 = 84,000 (= 28,000 x 3) 16,000 U Total Variance SR = Standard rate per hour = Total underapplied SH = (Aouput x standard hours for the production) variable overhead = standard hours allowed for the actual output
  • 114.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 114 Computing the Variable Overhead Variances Variable manufacturing overhead rate variance VMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorable
  • 115.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 115 Computing the Variable Overhead Variances Variable manufacturing overhead efficiency variance VMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorable
  • 116.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 116 Computing the Sum of All Variances Variable overhead rate variance 12,000$ U Variable overhead efficiency variance 4,000 U Fixed overhead budget variance 10,000 U Fixed overhead volume variance 18,000 U Total of the overhead variances 44,000$ U Computing the Sum of All variances ColaCo
  • 117.
    © 2012 McGraw-HillEducation (Asia)Garrison, Noreen, Brewer, Cheng & Yuen Journal Entries to Record Variances Appendix 12B
  • 118.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 118 Learning Objective 7 (Appendix 12B) Prepare journal entries to record standard costs and variances.
  • 119.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 119 Appendix 12B Journal Entries to Record Variances We will use information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal entries for standard cost variances. Recall the following: Material AQ × AP = $1,029 AQ × SP = $1,050 SQ × SP = $1,000 MPV = $21 F MQV = $50 U Labor AH × AR = $26,250 AH × SR = $25,000 SH × SR = $24,000 LRV = $1,250 U LEV = $1,000 U Now, let’s prepare the entries to record the labor and material variances.
  • 120.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 120 GENERAL JOURNAL Page 4 Date Description Post. Ref. Debit Credit Raw Materials 1,050 Materials Price Variance 21 Accounts Payable 1,029 To record the purchase of material Work in Process 1,000 Materials Quantity Variance 50 Raw Materials 1,050 To record the use of material Appendix 12B Recording Material Variances
  • 121.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 121 GENERAL JOURNAL Page 4 Date Description Post. Ref. Debit Credit Work in Process 24,000 Labor Rate Variance 1,250 Labor Efficiency Variance 1,000 Wages Payable 26,250 To record direct labor Appendix 12B Recording Labor Variances
  • 122.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 122 Cost Flows in a Standard Cost System Inventories are recorded at standard cost. Variances are recorded as follows:  Favorable variances are credits, representing savings in production costs.  Unfavorable variances are debits, representing excess production costs. Standard cost variances are usually closed out to cost of goods sold.  Unfavorable variances increase cost of goods sold.  Favorable variances decrease cost of goods sold.
  • 123.
    McGraw-Hill Education (Asia)Garrison, Noreen, Brewer, Cheng & YuenMcGraw-Hill/Irwin Slide 123 End of Chapter 12