mahm6e ch09.ab.az

8/12/2019 MAHM6e Ch09.Ab.az

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9-1

Standard

Costing: AManagerial

Control Tool

CHAPTER


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9-2

1. Tell how unit standards are set and why

standard costing systems are adapted.

2. State the purpose of a standard cost sheet.

3. Describe the basic concepts underlying

variance analysis, and explain when variances

should be investigated.

4. Compute the material and labor variances,

and explain how they are used for control.

Objectives

After studying this

chapter, you should

be able to:

Continued


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9-3

5. Calculate the variable and fixed overhead

variances, and give their definitions.

6. Appendix: Prepare journal entries for

materials and labor variances, and show how

to account for overhead variances.

Objectives


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Cost control often means

the difference betweensuccess and failure.


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Why Standard Cost Systems

Are Adopted

Standard costing systems enhanceplanning

and controland improve performancemeasurement.

Standard costing systemsfacilitate product

costing.


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Direct Direct

Materials Labor Overhead

Actual costing system Actual Actual Actual

Normal costing system Actual Actual Budgeted

Standard costing system Standard Standard Standard

Manufacturing Costs


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Standard Cost Sheet

for Corn ChipsStandard Standard Standard

Price Usage Cost SubtotalDescription

Direct materials:Yellow corn $0.006 18 oz. $0.108

Cooking oil 0.031 2 oz. 0.062

Salt 0.005 1 oz. 0.005

Lime 0.400 0.01 oz. 0.004

Bags 0.044 1 bag. 0.044

Total direct materials $0.223


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Standard Cost Sheet

for Corn ChipsStandard Standard Standard

Price Usage Cost SubtotalDescription

Direct materials $0.223

Direct labor:Inspectors $7.000 0.0070 hr. $0.049

Machine operators 10.000 0.0008 hr. 0.008

Total direct labor 0.057

Overhead:Variable overhead 3.850 0.078 hr. $0.030

Fixed overhead 32.050 0.0078 hr. 0.250

Total overhead 0.280

Total standard unit cost $0.560


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During the first week of March, 100,000

packages of corn chips are produced.

The standard quantity of yellow corn

meal per package is 18 ounces.


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SQ = Unit quantity standard x Actual output= 18 x 100,000

= 1,800,000 ounces

Standard Quantity of Materials Allowed

SH = Unit labor standard x Actual output

= 0.0008 x 100,000

= 80 direct labor hours

Standard Hours Allowed


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Total variance = Price variance +Usage variance

= (APSP)AQ +(AQSQ)SP

= [(AP x AQ)(SP x AQ)]

+[(SP x AQ)

(SP x SQ)]

= (AP x AQ)(SP x AQ)]

+(SP x AQ)

(SP x SQ)= (AP x AQ) (SP x SQ)


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9-12Variance Analysis: General Description

1. AP x AQ

(Actual Quantityof Input at Actual

Price)

2. SP x AQ

(Actual Quantityof Input at

Standard Price)

3. SP x SQ

(StandardQuantity of Input

at Standard Price)

Price Variance

(1-2)

Budget

Variance (1-3)

Usage Variance

(2-3)


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Unfavorable variances

occur whenever actual

prices or usage of inputs

are greater than standard

prices or usage.

Favorable variances

occur whenever the

opposite occurs.


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Cost

Time

$110,000

$100,000

$ 90,000

x

x

x

x

x

x


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Variance Analysis: Materials and Labor

Actual production 48,500 bags of corn chips

Actual cost of corn 780,000 ounces of $0.0069 = $5,382

Actual cost of

inspection labor 360 hours at $7.35 = $2,646

Actual Costs Budgeted Costs Total Variance

Corn $5,382.00 $5,238.00 $144.00 UInspection labor 2,646.00 2,376.50 269.50 U


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$558 F

Usage Variance

$702 U

Price Variance

$144 U

Total Variance

Variance Analysis: Columnar Approach

AQ x AP780,000 x 0.0069

$5,382

AQ x SP780,000 x $.0.0060

$4,680

SQ x SP873,000 x $0.0060

$5,238


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MPV = (APSP)AQ

Material Price Variance

The actual

price per unit

The standard

price per unit

The actual

quantity of

material used


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MPV = (APSP)AQ


= ($0.0069$0.0060)780,000

= $0.0009 x 780,000= $702 U

Percent of SP x SQ = $702/$4,680 = 15%


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Direct Materials Usage Variance

MUV = (AQSQ)SP

The actual

quantity of

materials used

The standard

quantity of

materials

allowed for the

actual output

The standard

price per unit


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9-20

MUV = (AQSQ)SP

Direct Materials Usage Variance

= (780,000873,000)($0.006)

= 93,000 x $0.006= $558 F

Percent of SQ x SP = $558/$5,238 = 10.7%


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Labor Rate Variances

LRV = (ARSR)AH

= ($7.35$7.00)360

= $0.35 x 360= $126 U

Percent of SR x SH = $126/$2,520 = 5%


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$269.50 U

Total Variance

Labor Variances: Columnar Approach

AH x AR360 x $735

$2,646

AH x SR

360 x $7.00

$2,520

SH x SR339.5 x $7.00

$2,376.50

$126 U

Rate Variance

$143.50 U

Efficiency Variance


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LEV = (AHSH) SR

The actual

direct labor

hours used

The standard

direct labor

hours thatshould have

been used

The standard

hourly wage

rate

Labor Efficiency Variances


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Labor Efficiency Variances

LEV = (AHSH)SR

= (360339.5)$7

= 20.5 x $7= $143.50 U

Percent of SH x SR = $143.50/$2,376.50 = 6%


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Variable Overhead Variances

Variable overhead rate (standard) $3.85/DLH

Actual variable overhead costs $1,600

Actual hours worked 400

Bags of chips produced 48,500

Hours allowed for production 373.3

Applied variable overhead $1,456


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$144 U

Total Variance

$84 U

Efficiency Variance

$60 U

Spending

Variance

Variable Overhead Variances: Columnar Approach

Actual VO$1,600

VO Rate x

Actual Hours

$1,540

VO Rate xStandard Hours

$1,456


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VOSV = (AVOR x AH)(SVOR x AH)

Variable Overhead

Spending Variances

= (AVOR

SVOR)AH

= ($4.00$3.85)400

= $60 U


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9-29

Crunch Chips, Inc.

Flexible Budget Performance ReportFor the Week Ended March 8, 2004

Cost

Formula

Actual

Costs BudgetSpending

Variance

Gas $3.00 $1,190 $1,200 $10 F

Electricity 0.78 385 312 73 U

Water 0.07 25 28 3 F

Total cost $3.85 $1,600 $1,540 $60 U


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9-30

Crunch Chips, Inc.

Performance ReportFor the Week Ended March 8, 2004

CostFormula

ActualCosts Budget

SpendingVariance

Gas $3.00 $1,190 $1,200 $10 F

Electricity 0.78 385 312 73 UWater 0.07 25 28 3 F

Total cost $3.85 $1,600 $1,540 $60 U

Budget

for

StandardHours

EfficiencyVariance

$1,135 $65 U

295 17 U26 2 U

$1,456 $84 U


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F ixed Overhead Variances

Budgeted fixed overhead $749,970

Practical activity 23,400 direct labor hours

Standard fixed overhead rate $32.05

Hours allowed to produce 3,000,000 bags of chips:

0.078 x 3,000,000 = $23,400

Budgeted or Planned Items

Actual Results

Actual production 2,750,000 bags of chipsActual fixed overhead cost $749,000

Standard hours allowed for actual

production 21,450


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Total F ixed Overhead Variances

Applied fixedoverhead

Standard fixed overhead ratex Standard hours

=

= $32.05 x 21,450

= $687,473 (rounded)

Total fixed

overhead variance$749,000$687,473=

= $61,527 underapplied


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$61,527 U

Total Variance

$970 F

Spending

Variance

F ixed Overhead Variances: Columnar Approach

Actual FO$749,000

Budgeted FO$749,970

Applied FO$687,473

$62,497 U

Volume

Variance


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Crunch Chips, Inc.

Performance ReportFor the Year Ended 2004

Actual

Costs

Budgeted

Cost Variance

Depreciation $530,000 $530,000 $ ----

Salaries 159,370 159,970 600 F

Taxes 50,500 50,000 500 U

Insurance 9,130 10,000 870 FTotal fixed overhead $749,000 $749,970 $970 F

Fixed

Overhead Items


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Volume Variance

Volume variance = $32.05(23,400

21,450)

= ($32.05 x 23,400)($32.05 x 21,450)

= $749,970$687,473

= Budgeted fixed overhead

Appliedfixed overhead

= $62,497 U


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Appendix:

Accounting forVariances


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The actual price is $0.0069 per ounce of

corn and standard price is $0.0060, and780,000 ounces of corn are purchased.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

Materials Inventory 4 680 00

Materials Price Variance 702 00

Accounts Payable 5 382 00



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During the period 780,000 ounces of corn

is placed into production. Thestandard quantity is 873,000 ounces,

and standard price is $0.006.




Work in Process 5 238 00

Materials Usage Variance 558 00

Materials Inventory 4 680 00

Material Usage Variance


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At the end of the year, the variances for

materials and labor are usually closed toCost of Goods Sold.




Cost of Goods Sold 971 50

Material Price Variance 702 00

Labor Efficiency Variance 143 50

Labor Rate Variance 126 00

Closing Variances


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The End

Chapter Nine

mahm6e ch09.ab.az

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