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 formulas
Direct labor variances formulas
Factory 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 formula
Materials price usage variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price)
materials quantity / usage variance formula
Materials 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:
(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 purchased / 100,000 / $0.78 actual / $78,000
actual quantity purchased / 100,000 / $0.80 standard / $80,000
------/ ------/ ------
Materials purchase price variance / 100,000 / $(0.02) / $(2,000) fav.
======/ ======/ ======
Actual quantity used / 87,300 / 0.80 standard / $69,840
Standard quantity allowed / 86,400 / 0.80 standard / $69120
------/ ------/ ------
Materials quantity variance / 900 / 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.
ANSWER:
Two Variance Method:
Actual factory overhead / $11,000Budgeted allowance based on standard hours allowed:
Fixed expenses budgeted / $4,500
Variable 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 / $11,250
Overhead 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 / $11,100
Actual 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
------
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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