cost accounting (16)

8/10/2019 Cost Accounting (16)

1/15

Chapter 7 & 8Standard costing


2/15

A General Model for Variance Analysis

ActualQuantity Actual Quantity Standard Quantity

ActualPrice StandardPrice Standard Price

Price Variance Quantity Variance

Materials price variance Materials quantity varianceLabor rate variance Labor efficiency variance

Variable overhead Variable overhead

spending variance efficiency variance

AQ(AP - SP) SP(AQ - SQ)

AQ= Actual Quantity SP= Standard Price

AP = Actual Price SQ= Standard Quantity

10-2


3/15

The price variance is computed onthe entire quantity purchased.

The quantity variance is computedonly on the quantity used.

Hanson purchased and used1,700 pounds. How are thevariances computed if the

amount purchased differsfromthe amount used?

Zippy

Material Variances

10-3

When the amount of direct-materials purchased is different from the amount

used, the direct-material price variance is based on the quantity purchased.

The difference between the purchase price and the standard price are

highlighted by the price variance, which relates to thepurchasing function.

In contrast, the direct-material quantity variance is based on the amount ofmaterial used in production.

The quantity variance highlights differences between the quantity of material

actually used and the standard quantity allowed.


4/15

Standard Costs

Now lets calculate

standard cost

variances for directlabor.

10-4

Now we will use the concepts of the general model to calculate the direct-labor

variances for Hanson

Actual Hours Actual Hours Standard Hours

Actual Rate Standard Rate Standard Rate


5/15

Hanson Inc. has the following direct

labor standard to manufacture oneZippy:

1.5 standard hours per Zippy at $10.00 perdirect labor hour

Last week 1,550 direct labor hourswere worked at a total labor cost of

$15,810 to make 1,000 Zippies.

Labor VariancesZippy

10-5

Hanson has established a standard for direct-labor at 1.5 hours at $10 per hour for

one Zippy.

Last week, 1,550 direct labor hours were used to make 1,000 Zippies.

The total direct labor cost was $15,810.


6/15

What was Hansons actualrate (AR)

for labor for the week?

a. $10.20 per hour.

b. $10.10 per hour.

c. $9.90 per hour.d. $9.80 per hour.

Labor Variances Zippy

10-6

To calculate the direct-labor rate variance, we must first determine the actual price per

direct labor hour.


7/15

What was Hansons actualrate (AR)

for labor for the week?

a. $10.20 per hour.

b. $10.10 per hour.

c. $9.90 per hour.d. $9.80 per hour.


AR = $15,810 1,550 hours

AR = $10.20 per hour

10-7

The total direct labor cost for the week of $15,810 is divided by the 1,550 direct labor

hours worked. Therefore, the actual rate for the week was $10.20 per hour.


8/15

Hansons labor rate variance (LRV)

for the week was:

a. $310 unfavorable.

b. $310 favorable.

c. $300 unfavorable.d. $300 favorable.


10-8Now that we know the actual direct labor rate, the standard rate and the actual directlabor hours used, we can calculate the direct-labor rate variance.


9/15

Hansons labor rate variance (LRV)

for the week was:


b. $310 favorable.

c. $300 unfavorable.

d. $300 favorable.

Labor Variances

LRV = AH(AR - SR)

LRV = 1,550 hrs($10.20 - $10.00)

LRV = $310 unfavorable

Zippy

10-9

The standard rate of $10.00 is subtracted from the actual rate of $10.20.

This difference is multiplied by the actual direct-labor hours of 1,550 pounds.

The resulting variance is a positive $310.

The variance is unfavorable because the actual rate per hour was greater than the

standard rate per hour.


10/15

The standard hours (SH) of labor that

should have been worked to produce

1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.


10-10

To calculate the direct-labor efficiency variance, we must first determine the standard

number of hours that should have been used to produce 1,000 Zippies


11/15

The standard hours (SH) of labor that

should have been worked to produce

1,000 Zippies is:

a. 1,550 hours.

b. 1,500 hours.

c. 1,700 hours.

d. 1,800 hours.

Labor Variances

SH = 1,000 units 1.5 hours per unitSH = 1,500 hours

Zippy

10-11

The standard hours allowed for one Zippy is 1.5 hours.

Since 1,000 Zippies were produced, we must multiply 1.5 hours times 1,000 units to

get 1,500 hours of direct-labor for the total standard hours allowed.


12/15

Hansons labor efficiency variance (LEV)

for the week was:


b. $510 favorable.


d. $500 favorable.


10-12Now that we know the actual hours used, the standard hours allowed and the standardrate per hour, we can calculate the direct-labor efficiency variance.


13/15

Hansons labor efficiency variance (LEV)

for the week was:


b. $510 favorable.


d. $500 favorable.

Labor Variances

LEV = SR(AH - SH)

LEV = $10.00(1,550 hrs - 1,500 hrs)

LEV = $500 unfavorable

Zippy

10-13

The standard hours allowed of 1,500 hours is subtracted from the actual hours used of 1,550

pounds.

This difference is multiplied by the standard rate of $10.00 per hour.

The resulting variance is a positive $500.

The variance is unfavorable because the actual hours used were greater than the standardhours allowed to make the 1,000 Zippies.


14/15

Actual Hours Actual Hours Standard Hours

Actual Rate Standard Rate Standard Rate

Labor Variances Summary

Rate variance

$310 unfavorable

Efficiency variance

$500 unfavorable

1,550 hours 1,550 hours 1,500 hours

$10.20 per hour $10.00 per hour $10.00 per hour

$15,810 $15,500 $15,000

10-14


15/15

To summarize, the direct-labor rate variance isthe difference between the actual hours at theactual rate and the actual hours at the standardrate.

The result is a $310 unfavorable price variance. The direct-labor efficiency variance is the

difference between the actual hours at thestandard rate and the standard hours at the

standard rate. The result is a $500 unfavorable efficiency

variance.

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