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Learning Objectives

Power Notes. Chapter 10. Standard Costing And Analysis Of Variance. 1. Standards 2. Budgetary Performance Evaluation 3. Direct Materials Variances 4. Direct Labor Variances 5. Factory Overhead Variances 6. Recording and Reporting Variances from Standards. Learning Objectives.

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Learning Objectives

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  1. Power Notes Chapter 10 Standard Costing And Analysis Of Variance 1. Standards 2. Budgetary Performance Evaluation 3. Direct Materials Variances 4. Direct Labor Variances 5. Factory Overhead Variances 6. Recording and Reporting Variances from Standards Learning Objectives C10 10-1

  2. Power Notes Chapter10 Performance Evaluation, Variances from Standards Slide # Power Note Topics • 3 • 6 • 13 • 20 • Standard Costs, Performance Reports • Direct Materials Variances • Direct Labor Variances • Factory Overhead Variances Note: To select a topic, type the slide # and press Enter. 10-2

  3. Standards — Performance Benchmarks Setting Standards Requires joint effortsof accountants, engineers, and other management personnel. Theoretical standards (ideal standards). Currently attainable standards (normal standards). Should be revised when they no longer reflect operating conditions they intended to measure. Types of Standards Reviewing and Revising Standards 10-3

  4. Westina Jean Sdn Bhd Standard Cost per Pair of XL Jeans Direct Materials: RM5.00 per square yard x 1.5 square yards RM7.50 RM9.00 per hour x .80 hours per pair 7.20 RM6.00 per hour x .80 hours per pair 4.80 Total standard cost per pair RM19.50 Direct Labor: Factory Overhead: 10-4

  5. Westina Jean Sdn Bhd. Budget Performance Report For the Month Ended June 30, 2003 Actual Flexible Cost Manufacturing Costs Costs Budget Variance Direct materials RM40,150 RM37,500 RM2,650 Direct labor 38,500 36,000 2,500 Factory overhead 22,400 24,000 (1,600) Total mfg. costs RM101,050 RM97,500 RM3,550 10-5

  6. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 Total units produced x 5,000 Total yards 7,500 Price per yard x RM5.00 Total dollars RM37,500 The standard is based on the actual units produced. 10-6

  7. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 Total units produced x 5,000 Total yards 7,500 Price per yard x RM5.00 Total dollars RM37,500 RM5.00 The total of this box is: RM5.00 x 7,500 yards price RM37,500 quantity 7,500 10-7

  8. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,5007,300 200 F (quantity) Price per yard x RM5.00 x RM5.50 RM.50 U (price) Total dollars RM37,500 RM40,150 RM2,650 U (total) Actual results are: 200 yards under standard RM.50 per yard over standard RM2,650 over standard 10-8

  9. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,5007,300 200 9 F (quantity) Price per yard x RM5.00 x RM5.50 RM.50 U (price) Total dollars RM37,500 RM40,150 RM2,650U (total) RM5.50 Actual cost. RM40,150 The total of this box is: RM5.50 x 7,300 yards price quantity 7,300 10-9

  10. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,5007,300 200 F (quantity) Price per yard x RM5.00 x RM5.50 RM.50 U (price) Total dollars RM37,500 RM40,150 RM2,650 U (total) Unfavorable price variance (RM.50 x 7,300 yards) RM5.50 RM3,650 RM5.00 Who is responsible for an unfavorable price variance? price quantity 7,300 7,500 10-10

  11. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,5007,300 200 F (quantity) Price per yard x RM5.00 x RM5.50 RM.50 U (price) Total dollars RM37,500 RM40,150 RM2,650 U (total) Who is responsible for a favorable quantity variance? RM5.50 RM5.00 Favorable quantity variance (200 yards x RM5.00) price RM1,000 quantity 7,300 7,500 10-11

  12. Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,5007,300 200 F (quantity) Price per yard x RM5.00 x RM5.50 RM.50 U (price) Total dollars RM37,500 RM40,150 RM2,650 U (total) Unfavorable price variance (RM.50 x 7,300 yards) RM5.50 RM3,650 RM5.00 Favorable quantity variance (200 yards x RM5.00) price RM1,000 quantity 7,300 7,500 10-12

  13. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 Total units produced x 5,000 Total hours 4,000 Rate per hour x RM9.00 Total dollars RM36,000 The standard is based on the actual units produced. 10-13

  14. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 Total units produced x 5,000 Total hours 4,000 Rate per hour x RM9.00 Total dollars RM36,000 RM9.00 The total of this box is: RM9.00 x 4,000 hours rates RM36,000 hours 4,000 10-14

  15. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,0003,850 150 F (time) Rate per hour x RM9.00 x RM10.00 RM1.00 U (rate) Total dollars RM36,000 RM38,500 RM2,500 U (total Actual results are: 150 hours under standard RM1.00 per hour over standard RM2,500 over standard 10-15

  16. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,0003,850 150 F (time) Rate per hour x RM9.00 x RM10.00 RM1.00 U (rate) Total dollars RM36,000 RM38,500 RM2,500 U (total RM10.00 Actual cost. RM38,500 The total of this box is: RM10.00 x 3,850 hours rates hours 3,850 10-16

  17. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,0003,850 150 F (time) Rate per hour x RM9.00 x RM10.00 RM1.00 U (rate) Total dollars RM36,000 RM38,500 RM2,500 U (total) Unfavorable rate variance (RM1.00 x 3,850 hours) RM10.00 RM3,850 RM9.00 Who is responsible for an unfavorable rate variance? rates hours 3,850 4,000 10-17

  18. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,0003,850 150 F (time) Rate per hour x RM9.00 x RM10.00 RM1.00 U (rate) Total dollars RM36,000 RM38,500 RM2,500 U (total) Who is responsible for a favorable time variance? RM10.00 RM9.00 Favorable time variance (150 hours x RM9.00) rates RM1,350 hours 3,850 4,000 10-18

  19. Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,0003,850 150 F (time) Rate per hour x RM9.00 x RM10.00 RM1.00 U (rate) Total dollars RM36,000 RM38,500 RM2,500 U (total) Unfavorable rate variance (RM1.00 x 3,850 hours) RM10.00 RM3,850 RM9.00 Favorable time variance (150 hours x RM9.00) rates RM1,350 hours 3,850 4,000 10-19

  20. Westina Jean Sdn Bhd. Factory Overhead Cost Budget For the Month Ended June 30, 2003 Direct Labor Hours 4,000 4,500 5,000 Total variable costs RM14,400 RM16,200 RM18,000 Variable costs per hour RM 3.60 RM 3.60 RM3.60 Total fixed costs RM12,000 RM12,000 RM12,000 Fixed costs per hour RM 3.00 RM 2.67 RM 2.40 Total costs per hour RM 6.60 RM 6.27 RM 6.00 Overhead is applied at RM6.00 per direct labor hour based on estimated 5,000 total hours. 10-20

  21. Westina Jean Sdn Bhd. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs RM14,400 RM10,400 RM4,000 F (RM3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U (RM2.40 x 4,000 hours) Total costs RM24,000 RM22,400 RM1,600 F Factory overhead applied at RM6.00 per direct labor hour based on 4,000 actual hours. Actual factory overhead per general ledger. 10-21

  22. Westina Jean Sdn Bhd. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs RM14,400 RM10,400 RM4,000 F (RM3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U (RM2.40 x 4,000 hours) Total costs RM24,000 RM22,400 RM1,600 F Controllable variance based on variable costs 10-22

  23. Westina Jean Sdn Bhd. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs RM14,400 RM10,400 RM4,000 F (RM3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U (RM2.40 x 4,000 hours) Total costs RM24,000 RM22,400 RM1,600 F Volume variance based on fixed costs 10-23

  24. Variable Factory Overhead Controllable Variance For the Month Ended June 30, 2003 Actual variable overhead RM10,400 Budgeted variable overhead 14,400 (4,000 actual hours x RM3.60) Favorable controllable variance RM(4,000) Controllable variance measures the efficiency of using variable overhead resources. A revised budget based on the actual hours used 10-24

  25. Fixed Factory Overhead Volume Variance For the Month Ended June 30, 2003 Budgeted volume (direct labor hours) 5,000 Actual volume (direct labor hours) 4,000 Capacity not used (direct labor hours) 1,000 Standard fixed rate x RM2.40 Unfavorable volume variance RM2,400 Volume variance measures the utilization of fixed overhead resources. Rate based on 5,000 direct labor hours. 10-25

  26. Power Notes Chapter10 Performance Evaluation, Variances from Standards This is the last slide in Chapter 10. 10-27

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