Standard costing short tutorial
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This document provides a tutorial on standard costing and variance analysis techniques. It defines key terms like actual cost, standard cost, quantity and price variances. Formulas are provided for calculating variances for materials, labor, variable overhead and fixed overhead. A sample problem demonstrates calculating variances for materials and labor. Another sample problem demonstrates calculating variances for variable and fixed overhead.
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![Standard costing short tutorial (MAS/COST)<br />NB: These are shortcut techniques; please refer to textbooks for basic knowledge. :)<br /> <br />Assumptions if the problem is silent:<br />VOH hours = DL hours<br />Actual quantity purchased = Actual quantity used<br />Actual Fixed OH = Budgeted Fixed OH<br />Normal capacity = Budgeted production<br /> <br />*If the given amount is 'per unit' then it is a standard.<br />*If the given amount is in 'total' then it is a budget.<br /> <br />,[object Object], <br />Actual cost (AQ x AP) Price/Rate/Spending Variance<br />Actual Qty/hrs x Standard price/rate (AQ x SP)<br />Standard cost (SQ x SP) Quantity/Efficiency Variance<br /> <br />*Standard quantity- The quantity that should have been incurred for ACTUAL PRODUCTION. E.g. You actually produced 10,000 units and the standard 'materials' for such is 2kg per unit, the standard amount is 20,000 (10,000 x 2kg).<br />,[object Object]](https://image.slidesharecdn.com/standardcostingshorttutorialf-110926113116-phpapp01/85/Standard-costing-short-tutorial-1-320.jpg)
![If the “AQxSP” is greater than the standard cost, then it is UNFAVORABLE efficiency variance*Materials issue: What if Materials used in production ≠ Materials purchased<br />ANS: If the question is Materials price variance alone, use materials purchased. However, if the question is the Net Materials variance, use materials used in production.<br />,[object Object],Fixed OH VarianceFixed Spending VarianceActual Fixed Overhead<br />Capacity/Volume VarianceBudgeted Fixed Overhead<br />Standard Fixed Overhead<br />*Same rules as above in case of standard cost/quantity. Budgeted fixed OH is usually given; else use actual hours/quantity.<br />*There is no “fixed efficiency variance” because fixed cost is not dependent on variable cost drivers.<br />,[object Object],-same computations as above, 3-way and 2-way are just compressed versions of the 4-way analysis. After getting the results from the 4 way analysis, you can now easily get the answers for 3-way and 2-way.<br />4-way analysis 3-way analysis 2-way analysis<br />Controllable VarianceOverhead Spending VarianceVariable Spending Variance<br />Efficiency VarianceFixed Spending Variance<br />Volume VarianceVariable Efficiency Variance<br />Volume Variance / Non-controllable varianceTotal Overhead VarianceVolume Variance<br />Sample Problem:<br />,[object Object],Help Me Company began operations in 2010. In 2011, the company manufactured only one product. The 2011 standard cost per unit is as follows:<br />Materials: two kilos of plastic at P2 P 4.00<br />Direct labor 1.6 hours at P4 6.40<br />Actual data for the month of December are as follows:<br />Production = 4,900 units<br />Materials purchased = 10,000 kilos at P1.90 per kilo<br />Materials used = 9,900 kilos<br />Direct labor = 8,000 hours at P4.10/hr<br />Reqd: Compute the Materials and Labor variances.<br />SUGGESTED SOLUTION:<br />MATERIALS<br />Materials Price variance: P1000 FActual cost of purchase: 10,000 x 1.90 = 19,000<br />AQ purchased x SP : 10,000 x 2.00 = 20,000<br />Materials Price variance: P990 FActual cost of used: 9,900 x 1.90 = 18,810<br />Materials Quantity variance: P200 UAQ used x SP: 9,900 x 2.00 = 19,800<br />Standard cost: 4,900 units x 2 kgs x 2 = 19,600<br />Total materials variance: P790 F<br />***Take note that there were two amounts for materials price variance. The first amount (P1000 F) will be the answer if the question is solely “Materials Price variance.” However, the second computation (P990 F) will be used if the question is “Total Materials variance.”<br />***The standard cost for materials was computed using the actual units produced. Remember, standard cost means the cost that should have been incurred for the actual production. <br />LABOR<br />Labor rate variance: P 800 UA: 8000 hrs x 4.10 = P 32,800<br />Labor efficiency variance: P 640 UA: 8000 hrs x 4.00 = 32,000<br />Total labor variance: P 1440 US: 7840 hrs x 4.00 = 31,360<br />*7,840 hrs: 4900 units multiplied by the standard hours per unit of 1.6hrs/unit.<br />2. Overhead variances<br />Don’t Worry Company applies variable overhead at a rate of P1.50 per direct labor hour and fixed overhead at a rate of P1.75 per direct labor hour. The company budgets two direct labor hours for each of the 5,900 units that are scheduled for production. Simon incurred actual variable overhead totaling P18,750 and actual fixed overhead totaling P21,500 last year for the production of 6000 units. In addition, 11,800 direct labor hours were actually incurred. <br />Reqd: Variable and fixed overhead variances.<br />SUGGESTED SOLUTION: <br />VARIABLE OVERHEAD<br />Variable spending variance: P 1,050 UActual cost: 18,750<br />Variable efficiency variance: P 300 FA (11,800 x 1.50): 17,700<br />Variable overhead variance: P 750 US (6000 x 2 x 1.50): 18,000<br />FIXED OVERHEAD<br />Fixed spending variance: P 850 UActual cost: 21,500<br />Volume variance: P 350 FBudgeted (5,900 x 2 x 1.75): 20,650<br />Fixed overhead variance: P500 UStandard (6000 x 2 x 1.75): 21,000<br />*Legend: <br />AQ = Actual quantity/hrs<br />AP = Actual price/rate<br />SQ = Standard quantity/hrs<br />SP = Standard price<br />U = Unfavorable<br />F = Favorable<br />PS: The questions were based from the handouts of CPAR for MAS Standard Costing and Variance Analysis.<br />Questions? PM me! <br />-adjustingentries.tumblr.com<br />](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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1. Standard hours to produce 1,000 Zippies = 1,000 x 1.5 = 1,500 hours
2. Standard direct labor cost = Standard hours x Standard rate
= 1,500 hours x $10/hour = $15,000
3. Actual direct labor hours worked last week = 1,550 hours
4. Actual direct labor cost = Actual hours x Actual rate
= Let's assume the actual rate is $10/hour
= 1,550 hours x $10/hour = $15,500
5. Labor efficiency variance = Standard hours - Actual hours
= 1,500 -
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The document discusses standard costing and variance analysis techniques. It defines standard cost as a predetermined cost computed in advance based on cost factors. It explains that standard costing compares standard and actual costs to determine efficiency and take corrective action. Variances are the differences between standard and actual costs and are computed for materials, labor, and overhead. Variance analysis involves subdividing total variances to assign responsibility for performance differences. Formulas are provided for calculating different type of variances.
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Standard costing is a system that uses predetermined costs to evaluate actual costs and operational performance. It sets standards for direct materials, direct labor, and factory overheads and calculates variances between actual and standard costs. Variance analysis identifies reasons for differences from standards and helps improve operations, reduce costs through error corrections, and deploy resources effectively. Standard costing provides rules and guidelines for production, allows performance comparisons, and assists with budgeting, financial reporting, and cost management to increase efficiency and productivity. However, setting accurate standards is technical and not easy, and meeting standards should not be the only target.
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1. Standard hours to produce 1,000 Zippies = 1,000 x 1.5 = 1,500 hours
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Standard costing involves setting predetermined expected costs for cost components like direct materials, direct labor, and factory overhead. Variances are calculated as the difference between actual and standard costs. This includes direct material, direct labor, and factory overhead variances. The direct material variance has a price and usage component. The factory overhead variance separates variable from fixed costs, with the controllable variance measuring variable cost efficiency and volume variance measuring fixed cost utilization.
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The document discusses standard costing and variance analysis techniques. It defines standard cost as a predetermined cost computed in advance based on cost factors. It explains that standard costing compares standard and actual costs to determine efficiency and take corrective action. Variances are the differences between standard and actual costs and are computed for materials, labor, and overhead. Variance analysis involves subdividing total variances to assign responsibility for performance differences. Formulas are provided for calculating different type of variances.
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Standard costing is a system that uses predetermined costs to evaluate actual costs and operational performance. It sets standards for direct materials, direct labor, and factory overheads and calculates variances between actual and standard costs. Variance analysis identifies reasons for differences from standards and helps improve operations, reduce costs through error corrections, and deploy resources effectively. Standard costing provides rules and guidelines for production, allows performance comparisons, and assists with budgeting, financial reporting, and cost management to increase efficiency and productivity. However, setting accurate standards is technical and not easy, and meeting standards should not be the only target.
Standard Costing:The complete concept.
Standard costing involves setting standards for materials, labor, and overhead and comparing actual costs to the standards to calculate variances. It has several advantages as a management tool including cost control, finding inefficiencies, and measuring efficiency. Some limitations include difficulty setting standards for non-standard products and not considering all circumstances when setting standards. The document provides examples of calculating variances for materials, labor, and overhead costs based on standard and actual amounts. It also discusses classification of standards, revising standards, and advantages and limitations of standard costing.
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This document discusses standard costing techniques and variance analysis. It defines standard costs as predetermined estimates of costs that are compared to actual costs incurred. Variances are the differences between standard and actual costs. Five types of standards are described - basic, ideal, currently attainable, current, and expected. Variance analysis involves sub-analyzing variances into constituent parts like material and labor variances. Material and labor variances include total, price, usage/efficiency, and idle time variances. Formulas and examples are provided to demonstrate calculating each variance type.
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Standard costing summary
1. The document discusses various types of standard costing variances for materials, labor, and overhead. It provides formulas to calculate 22 different variances including material cost, price, quantity, and mix variances as well as labor cost, rate, efficiency, and mix variances.
2. Overhead variances covered include variable and fixed overhead cost, expenditure, efficiency, volume, capacity, revised capacity, and calendar variances. Formulas use standard and actual quantities, prices, rates, and overhead amounts to calculate the variances.
3. Short summaries are provided for each variance along with reconciliation formulas showing the relationships between different variances.
Flexible budgets & overhead costs
This document summarizes key concepts around flexible budgets, overhead cost management, and activity-based budgeting from chapter 17:
1) A flexible budget accounts for a range of activity levels rather than a single planned level like a static budget. It allows comparison of actual costs to budgeted costs at the actual level of activity.
2) Flexible budgets are based on an activity driver like machine hours or units of output rather than inputs. This allows calculation of variable overhead rates and variances between actual and budgeted overhead costs.
3) Variance analysis separates flexible budget variances into variable overhead spending and efficiency variances and fixed overhead budget and volume variances to help management control overhead costs.
Standard-Costing-Variance-Analysis.ppt
This document provides definitions and explanations of standard costing and variance analysis. It defines standard costs as predetermined costs based on estimates for materials, labor, and overhead. Standard costing involves establishing standard costs and measuring actual costs against standards to analyze variances and improve efficiency. Variance analysis involves separating total variances into constituent parts and explaining the reasons for variances. The document then discusses different types of variances, including material, labor, and overhead variances. It provides examples of how to calculate various variances using standard and actual data.
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The document classifies variances into material cost, price, usage, mix, and yield variances. It also discusses labor cost, rate, efficiency, idle time, mix, and yield variances. Finally, it covers variable and fixed overhead variances. Material and labor variances are calculated using standard quantities/rates and actual quantities/rates. Variable overhead variances have expenditure/budget and efficiency components. Fixed overhead variance is the difference between standard overhead recovered and actual overhead incurred.
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1. Standard costs are benchmarks used to measure performance against targets for inputs like direct materials, direct labor, and manufacturing overhead. Variances from standards are identified and reported.
2. Managers from different departments work together to set reasonable and attainable standards for direct materials, direct labor hours and rates, and variable overhead rates and activities. Variance analysis is used to identify issues.
3. Material variances are calculated based on the actual quantity purchased and price paid versus the standard quantity needed and price. The price variance is calculated on total quantity purchased while the quantity variance is only on amount used in production.
ch 9 Standard Costs and BSC.pdf
The document discusses standard costs and variance analysis. It begins by defining standards as benchmarks for measuring performance, including quantity and cost standards. It then provides examples of calculating variances for direct materials and direct labor. For materials, it calculates a price variance and quantity variance using an example where actual costs differed from standards. For labor, it similarly calculates a rate variance and efficiency variance. The document provides details on setting various types of standards and how managers from different departments collaborate on the process. It also explains how variances are analyzed and how that cycle works.
chap10notes.ppt
The document discusses standard costs and variance analysis. It begins by defining standard costs and the types of standards used, including quantity and price standards. It then discusses how variances from standards are analyzed and how that analysis can be used for management decision making. The document provides examples of calculating variances for direct materials and direct labor. It also discusses how to set standards and how variances are used to hold different managers accountable.
chap10notes.pdf
The document discusses standard costs and variance analysis. It provides information on setting standards for direct materials, direct labor, and manufacturing overhead. It also explains how to calculate variances for actual costs compared to standards, including price, quantity, rate, and efficiency variances. Examples are provided to demonstrate calculating variances for direct materials and direct labor.
Advancedcostaccounting 140417192903-phpapp02
Standard costing refers to expected costs under anticipated conditions and allows for comparison of standard versus actual costs. Differences between standard and actual costs are referred to as variances, which should be investigated if significant. Standard cost is the cost of a single unit while budgeted cost is the total cost of budgeted units. Target costing determines the allowable cost to earn a required profit, while kaizen costing continually reduces costs after design and production. Cost variances measure differences between planned and actual costs. Material, labor, and variable overhead variances compare standard and actual costs for these items.
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I apologize, upon further review I do not have enough information provided to fully solve part 2 of this exercise. The standard hours allowed and standard rate per hour are given, but the actual hours of input and actual rate per hour are not stated. Please provide those values and I will be happy to complete the variance analysis for the direct labor costs.
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The document discusses analyzing and reporting variances from standards. It defines a variance as the difference between an actual result and the corresponding budgeted amount. It describes two types of variances: favorable variances which increase operating income relative to the budget, and unfavorable variances which decrease operating income relative to the budget. The document also discusses static budget variances, flexible budget variances, sales volume variances, and how variances are computed.
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The document discusses standard costing and variance analysis. It defines standard costs and explains how they are set using historical analysis, engineering studies, and input from operations. Variances measure the difference between actual and standard costs and are calculated for direct materials, direct labor, and factory overhead. Direct material and labor variances are broken into price and quantity/efficiency components. Factory overhead variance has a flexible budget and volume component. The examples provided illustrate calculating variances for a company that produces peanut butter.
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The document discusses:
1) Flexible budgets and variance analysis for overhead costs, including developing variable and fixed overhead rates.
2) Calculating variances for variable manufacturing overhead, including a spending variance and efficiency variance.
3) Fixed manufacturing overhead only has a spending variance, as efficiency is not applicable to a fixed cost.
The document provides an example calculation of variances for variable and fixed manufacturing overhead costs.
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This document discusses standard costing and variance analysis. It contains:
1) An explanation of how standards are used in budgeting and the standard-setting process.
2) Descriptions of direct material, direct labor, and factory overhead variances and how they are calculated.
3) Examples showing the calculation of price, quantity, rate, efficiency, flexible budget, and volume variances.
The overall purpose is to explain how to analyze variances between actual and standard costs.
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This document discusses standard costing and variance analysis techniques. It begins by explaining that standard costing involves setting standard costs for items and activities, and comparing actual costs to standards. Variance analysis compares actual costs to standard costs to identify areas where costs are higher or lower than expected. The document then provides details on different types of standard cost variances, including price, efficiency, and usage variances, and whether they are favorable or unfavorable. It also discusses computing and analyzing variances for materials, labor, and factory overhead costs. Finally, it explains absorption costing, which accounts for all direct and indirect costs associated with manufacturing a product.
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overhead variance- The difference between the actual overhead incurred by the company and the standard overhead estimated by the company called the overhead variance.
Standard Costs Variance Analysis and its impact on Managerial Accounting
This document covers standard costs and variance analysis in managerial accounting. It defines standard costs and how they are developed, and explains how to calculate variances for direct materials, direct labor, and manufacturing overhead. Variances indicate differences between actual and standard costs, and are investigated to identify potential problems. Favorable variances are not always good, and process improvements can lead to unfavorable variances. The document provides examples of calculating variances and their financial impact.
Standard costing and variances
Standard costing is a technique that uses predetermined costs and revenues to measure variances from actual costs and analyze their causes to improve efficiency. It involves setting standard costs for materials, labor, and overhead, measuring actual costs, comparing actuals to standards, and taking corrective action. Variances in standard costing include material cost, price, usage, mix, and yield variances as well as labor cost, rate, efficiency, and idle time variances. The goal is to eliminate waste and inefficiencies through variance analysis.
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