Cost acc 2

Standard Costing and Variance Analysis Formulas:

This is a collection of variance formulas / equations which can help you calculate variances for direct materials, direct labor, and factory overhead.

Direct materials variances formulasDirect labor variances formulasFactory overhead variances formulas

Direct Materials Variances:

Materials purchase price variance Formula:

Materials purchase price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)

Materials price usage variance formulaMaterials price usage variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price)

materials quantity / usage variance formulaMaterials price usage variance = (Actual quantity used × Standard price) – (Standard quantity allowed × Standard price)

Materials mix variance formula(Actual quantities at individual standard materials costs) – (Actual quantities at weighted average of standard materials costs)

Materials yield variance formula(Actual quantities at weighted average of standard materials costs) – (Actual output quantity at standard materials cost)

Direct Labor Variances:

Direct labor rate / price variance formula:(Actual hours worked × Actual rate) – (Actual hours worked × Standard rate)

Direct labor efficiency / usage / quantity formula:(Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate)

Direct labor yield variance formula:(Standard hours allowed for expected output × Standard labor rate) – (Standard hours allowed for actual output × Standard labor rate)

Factory Overhead Variances:

Factory overhead controllable variance formula:

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(Actual factory overhead) – (Budgeted allowance based on standard hours allowed*)

Factory overhead volume variance:(Budgeted allowance based on standard hours allowed*) – (Factory overhead applied or charged to production**)

Factory overhead spending variance:(Actual factory overhead) – (Budgeted allowance based on actual hours worked***)

Factory overhead idle capacity variance formula:(Budgeted allowance based on actual hours worked***) – (Actual hours worked × Standard overhead rate)

Factory overhead efficiency variance formula:(Actual hours worked × Standard overhead rate) – (Standard hours allowed for expected output × Standard overhead rate)

Variable overhead efficiency variance formula:(Actual hours worked × Standard variable overhead rate) – (Standard hours allowed × Standard variable overhead rate)

Variable overhead efficiency variance formula:(Actual hours worked × Fixed overhead rate) – (Standard hours allowed × Fixed overhead rate)

Factory overhead yield variance formula:(Standard hours allowed for expected output × Standard overhead rate) – (Standard hours allowed for actual output × Standard overhead rate)

Problem 1:Materials Variance Analysis:The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter as standard for the production of its Type A lawn chair. During one month's operations, 100,000 meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased.

Required: Materials price and quantity variances.Solution:

Meters of pipe Unit Cost AmountActual quantity

purchased100,000 $0.78 actual $78,000

actual quantity purchased

100,000 $0.80 standard $80,000

----------- ----------- -----------Materials purchase

price variance100,000 $(0.02) $(2,000) fav.

======= ======= =======Actual quantity used 87,300 0.80 standard $69,840

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Standard quantity allowed

86,400 0.80 standard $69120

------------- ------------- -------------Materials quantity

variance900 0.80 $720 Unfav

======= ======= =======

Problem 2:Materials Variance Analysis:

The standard price for material 3-291 is $3.65 per liter. During November, 2,000 liters were purchased at $3.60 per liter. The quantity of material 3-291 issued during the month was 1775 liters and the quantity allowed for November production was 1,825 liters. Calculate materials price variance, assuming that:

Required: Materials price variance, assuming that:It is recorded at the time of purchase (Materials purchase price variance).It is recorded at the time of issue (Materials price usage variance).

Problem 3:Labor Variance Analysis:

The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation 4-802 at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct labor hours at a cost of $6.90 per hour.

Required: Calculate:labor rate variance or Labor price variance.Labor efficiency or usage or quantity variance.

Two, three & four variance methods

Factory Overhead Variance Analysis:

Example:

The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is:

Fixed: $4,500 / 5,000 hours = $0.90Variable: $7,500 / 5,000 hours = $1.50 -------- $2.40

For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard hours allowed for actual production were 4,500.

Required: Factory overhead variances using two, three and four variance methods.

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ANSWER: Two Variance Method:

Actual factory overhead $11,000Budgeted allowance based on standard hours allowed:Fixed expenses budgeted $4,500Variable expenses (4,500 standard hours allowed × $1.50 variable overhead rate)

$6,750

----------- $11,250-----------

Favorable controllable variance $ (250) fav.======

Budgeted allowance based on standard hours allowed $11,250Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)

$10,800

------------Unfavorable volume variance $450 unfav.

Three Variance Method:Actual factory overhead $11,000Budgeted allowance based on actual hours worked: Fixed expenses budgeted $4,500 Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate)

$6,600

----------- $11,100 -----------Favorable spending variance $ (100) fav. ======Budgeted allowance based on actual hours worked $11,100Actual hours worked × Standard overhead rate (4,400 hours × $2.40)

$10,560

------------Unfavorable spending variance $540 unfav.

======Actual hours worked × Standard overhead rate (4,400 hours × $2.40)

$10,560

Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)

$10,800

-----------Favorable efficiency variance $ (240) fav.

Four Variance Method:

Actual factory overhead $11,000Budgeted allowance based on actual hours worked: Fixed expense budgeted $4,500 Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate)

$6,600

----------- $11,100

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-----------Favorable spending variance $ (100) fav. ======Budgeted allowance based on actual hours worked

$11,100

Budgeted allowance based on standard hours allowed

$11,250

-----------Favorable variable overhead efficiency variance $ (150) fav. ======Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed overhead rate)

$3,960

Standard hours allowed × fixed overhead rate (4,500 actual hours × $0.90)

4,050

-----------Favorable fixed overhead efficiency variance $ (90) fav. ======Normal capacity hours (5000) × Fixed overhead rate ($0.90)

$4,500

Actual hours worked (4,400) × Fixed overhead rate ($0.90)

$3,960

------------Unfavorable Idle capacity variance (600 hours × $0.90)

$540 unfav.

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