Managerial Accounting
Tools for Business Decision-Making
Sixth Canadian Edition
Weygandt
Kimmel
Aly
Chapter 12
Standard Costs and Balanced
Scorecard
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Copyright ©2021 John Wiley & Sons Canada, Ltd.
Learning Objectives
1. Describe standard costs.
2. Determine direct materials variances.
3. Determine direct labour and total manufacturing
overhead variances.
4. Prepare variance reports and balanced scorecards.
5. Identify the features of a standard cost accounting system
(Appendix 12A).
Copyright ©2021 John Wiley & Sons Canada, Ltd.
2
The Need for Standards
• Standards:
o
o
Used in business settings to establish consistent practices
E.g.: quality control standards; codes of conduct and
standard costs for products or services
• Standard costs:
o
A predetermined unit cost
•
•
o
Example: A company determines that each widget produced
should cost $6.23 to produce
Cost includes direct materials, direct labour and overhead
Used as measures of performance
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3
Advantages of Standard Costs
• Facilitate management planning and control
• Promote greater economy by making employees more
“cost-conscious”
• Help set selling prices without having to wait for actual
costs
• Help highlight variances in management by exception
• Simplify inventory costing and record keeping
• Advantages realized only when standard costs are
carefully established and carefully used.
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4
Distinguishing Between Standards and
Budgets
• Standards and budgets are both:
o
o
Pre-determined costs
Play a role in management planning and control
• A standard is a per unit amount where a budget is a
total amount
• Standard costs may be incorporated into a cost
accounting system
o
E.g. – the standard cost for each unit produced is
recorded as the inventoriable cost regardless of the
actual cost
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5
Setting Standard Costs
• Setting standard costs:
o
o
Requires input from all persons who have responsibility for
costs and quantities
Standards costs need to be current and should be under
continuous review
• Two levels of standard costs:
1.
2.
Ideal standards: optimum level of performance under
perfect operating conditions
Normal standards: efficient levels of performance attainable
under expected operating conditions (rigorous but
attainable)
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6
Direct Materials Price Standard
• Direct materials price standard is the cost per unit of
direct materials that should be incurred
• Based on the purchasing department’s best estimate
of the cost of raw materials
o
When actual cost is known and is significantly and
permanently different from the best estimate the
standard should be reviewed
• Includes related costs such as receiving, storing, and
handling
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7
Direct Materials Price Standard
Example – Xonic Inc.
• Xonic Inc. produces a caffeinated energy drink
• Standard cost for each litre of direct materials is
estimated to be:
Item
Price
Purchase price, net of discounts
Freight
Receiving and handling
Standard direct materials price per kilogram
$2.70
0.20
0.10
$3.00
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8
Direct Materials Quantity Standard
• Quantity standard is the amount of direct materials
that should be used per unit of finished product or
service
o
You might think of it in terms of the “recipe”
• Based on physical measure such as pounds, barrels,
etc.
o
Both the quantity and quality of materials impact the
quantity standard that is set
• Includes allowances for unavoidable waste and
normal spoilage
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9
Direct Materials Quantity Standard
Example – Xonic Inc.
•
•
Each energy drink produced has a standard direct
materials quantity of 4.0 kilograms
If everything goes according to ‘plan’ or the standard as
set, then each energy drink should use no more than 4.0
kilograms of direct materials at a standard cost of $3.00
per kilogram
Item
Quantity (kilograms)
Required materials
Allowance for waste
Allowance for spoilage
Standard direct materials quantity per unit
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3.5
0.4
0.1
4.0
10
Standard Direct Materials Cost Per Unit
Example – Xonic Inc.
The standard direct materials cost per finished unit is
$12.00 per litre of energy drink calculated as:
Standard Direct Materials Cost per Litre
Standard Direct
Materials Price (SP)
×
Standard Direct Materials
Quantity (SQ)
=
Standard Direct
Materials Cost
$3 per kg
×
4 kg per litre
=
$12 per litre
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11
Direct Labour Price Standard
• Rate per hour that should be incurred for direct
labour
• Based on current wage rates adjusted for anticipated
changes, such as cost of living adjustments
• Includes employer payroll taxes (income tax, CPP and
EI), and benefits such as holidays, paid vacation, and
insurance
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12
Direct Labour Price Standard
Example – Xonic Inc.
• Each direct labour hour has a base cost of $12.50 per
hour
• To that, a Cost of Living Adjustment (COLA) is added
and all payroll taxes and benefits
• Xonic’s total standard direct labour cost is $15.00 per
hour
Item
Price
Hourly wage rate
COLA
Payroll taxes
Fringe benefits
Standard direct labour rate per hour
Copyright ©2021 John Wiley & Sons Canada, Ltd.
$12.50
0.25
0.75
1.50
$15.00
13
Direct Labour Quantity Standard
• Time that should be required to make one unit of the
product under normal operating conditions
• Standard quantity should include allowances for:
o
o
o
Normal rest periods (e.g. coffee breaks)
Cleanup and regular maintenance
Machine setup and downtime
• Critical in labour-intensive industries
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Direct Labour Quantity Standard
Example – Xonic Inc.
Each litre of energy drink should take no more than 2.0
direct labour hours calculated as:
Item
Quantity (Hours)
Actual production time
Rest periods and cleanup
Set-up and downtime
Standard direct labour hours per unit
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1.5
0.2
0.3
2.0
15
Standard Direct Labour Cost Per Unit
Example – Xonic Ltd.
The standard direct labour cost per finished unit is $30.00
per litre of energy drink calculated as:
Standard Direct Labour Cost per Litre
Standard Direct
Labour Rate (SP)
×
Standard Direct Labour
Hours (SQ)
=
Standard Direct
Labour Cost
$15 per hour
×
2 hours
=
$30 per litre
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Manufacturing Overhead Standard
•
For manufacturing overhead, a standard predetermined
overhead rate is used
o
The predetermined rate is derived by dividing budgeted
overhead costs by an expected standard activity index
•
Activity index based on normal capacity
•
o
•
The average activity output the company expects to
experience over the long-term
Examples: Standard direct labour hours and standard
machine hours.
Activity-based costing (ABC) can be used with standard
costing
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Manufacturing Overhead Standard
Example – Xonic Ltd. (1 of 2)
•
Activity base is direct labour hours
o
•
Each litre of energy drink has a standard of 2.0 direct labour
hours
Normal capacity for Xonic is 13,200 litres
o
13,200 x 2.0 hours = 26,400 total standard direct labour
hours
Budgeted
Overhead Costs
Variable
Fixed
Total
Amount
Standard Direct
Labour Hours
Overhead Rate per
Direct Labour Hour
$ 79,200
52,800
$132,000
26,400
26,400
26,400
$3.00
2.00
$5.00
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Manufacturing Overhead Standard
Example – Xonic Inc. (2 of 2)
The standard manufacturing overhead rate per unit is
calculated as:
Standard Manufacturing Overhead Cost per Litre
Predetermined
Overhead Rate (SP)
×
Standard Direct
Labour Hours (SQ)
=
Overhead Rate per
Direct Labour Hour
$5
×
2 hours
=
$10
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Total Standard Cost Per Unit
• Sum of the standard costs for
o
o
o
Direct materials
Direct labour, and
Manufacturing overhead (both fixed and variable)
• Standard ‘cost card’ prepared for each product
o
Used to determine variances from the standard
• If a standard accounting system is used, the standard
cost is what is recorded in the books as well
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Total Standard Cost Per Unit
Example – Xonic Inc.
• Standard cost card per litre of energy drink for Xonic
Ltd.
Product: Xonic Tonic
Manufacturing Cost
Components
Direct materials
Direct labour
Manufacturing overhead
Standard
Quantity
4 kilograms
2 hours
2 hours*
×
Unit Measure:
Litre Standard
Price
$ 3.00
15.00
5.00
=
Standard
Cost
$12.00
30.00
10.00
$52.00
• Any difference in cost incurred or quantity used will
identify any variances
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Analyzing and Reporting Variances from
Standards (1 of 5)
• Variance: Difference between actual cost and
standard cost
o
Also used for the difference between actual cost and
budgeted cost
• Variances are calculated, reported and interpreted for:
o
o
o
Direct materials
Direct labour
Manufacturing overhead
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Analyzing and Reporting Variances from
Standards (2 of 5)
• When an actual cost is greater than a standard cost,
the variance is unfavourable.
• Unfavourable variances occur when:
o
o
o
Actual cost or price paid is greater than the standard
cost
More direct material units are used per unit of product
produced than the standard allowed
More direct labour hours are used per unit of product
produced than the standard allowed
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Analyzing and Reporting Variances from
Standards (3 of 5)
• When actual costs are less than standard costs, the
variance is favourable.
• Favourable variances occur when
o
o
o
Actual cost or price paid is less than the standard cost
Fewer direct material units are used per unit of product
produced than the standard allowed
Fewer direct labour hours are used per unit of product
produced than the standard allowed
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24
Analyzing and Reporting Variances from
Standards (4 of 5)
• In order to interpret a variance one must look at its
components.
Materials Variance
+
Labor Variance
+ Overhead Variance =
Total Variance
• Direct materials variance is made up of a Price
Variance and a Quantity Variance
• Direct labour variance is made up of a Rate Variance
and a Quantity Variance
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Analyzing and Reporting Variances from
Standards (5 of 5)
Direct materials (and direct labour) variances are
calculated as mapped out below.
Note: Price Variance + Quantity Variance = Total Variance
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26
Direct Materials Variances
Example – Xonic Inc. (1 of 5)
Direct material standard to manufacture one litre of Tonic
→ 4 litres per unit at $3 per litre
Xonic produced 1,000 litres of Tonic
Standard direct materials = 1,000 x 4 = 4,000 litres of
direct material should have been used
Total standard cost = 4,000 x $3 = $12,000
Actual usage was 4,200 litres of material
Actual cost was $13,020 (or $3.10 per litre).
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Direct Material Variances
Example – Xonic Inc. (2 of 5)
The total direct materials budget variance (TDMBV)
calculation:
Total Actual
Quantities (TAQ) ×
Actual Price (AP)
(4,200 × $3.10)
−
Total Standard Quantities
Allowed (TSQA) ×
Standard Price (SP)
(4,000 × $3.00)
=
Total Direct
Materials Budget
Variance (TDMBV)
$1,020 U
The total budget variance is a combination of the Price
Variance and the Quantity Variance
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Direct Material Variances
Example – Xonic Inc. (3 of 5)
• The total variance is analyzed to determine the
amount that is attributable to price (costs) and to
quantities (usage).
• The materials price variance, calculated as:
Total Actual
Quantities (TAQ) ×
Actual Price (AP)
(4,200 × $3.10)
−
Total Actual Quantities
(TAQ) ×
Standard Price (SP)
(4,200 × $3.00)
Materials Price
Variance (MPV)
=
$420 U
Alternative calculation:
= TAQ x (AP – SP)
= 4,200 x ($3.10 – 3.00) = $420 U
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Direct Material Variances
Example – Xonic Inc. (4 of 5)
The materials quantity variance calculation:
Total Actual
Quantities (TAQ) ×
Standard Price (SP)
(4,200 × $3.00)
−
Total Standard Quantities
Allowed (TSQA) ×
Standard Price (SP)
(4,000 × $3.00)
Materials Quantity
Variance (MQV)
=
$600 U
Alternative calculation:
= (TAQ – TSQA) x SP
= (4,200 – 4,000) x $3.00 = $600 U
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Causes of Materials Variances
• May be caused by a variety of factors, both internal
and external factors
• Investigating materials price variances begins in the
purchasing department
• Investigating The variance may be beyond the control
of purchasing (E.g. prices rise faster than expected)
• materials quantity variance begins in the production
department
o
The variance may be beyond the control of production
(E.g. faulty machinery, newer labour force unfamiliar
with process)
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Let’s Review 4
At the beginning of 2021, Beal Mfg. Ltd., adopted the following standards for its direct
material costs:
Input
Direct materials
Cost per Output Unit
3 kg at $6 per kg
$ 18
During the most recent month 7,800 output units were produced with 23,100
kilograms of material used at a cost of $6.24 per kilogram.
What were the direct materials price variance and quantity variance,
respectively?
a. $5,616F and $1,872U
b. $5,616U and $1,872F
c. $5,544F and $1,800U
d. $5,544U and $1,800F
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Let’s Review 4: Solution
At the beginning of 2021, Beal Mfg. Ltd., adopted the following standards for its direct
material costs:
Input
Direct materials
Cost per Output Unit
3 kg at $6 per kg
$ 18
During the most recent month 7,800 output units were produced with 23,100
kilograms of material used at a cost of $6.24 per kilogram.
What were the direct materials price variance and quantity variance,
respectively?
a. $5,616F and $1,872U
b. $5,616U and $1,872F
c. $5,544F and $1,800U
d. $5,544U and $1,800F (correct answer)
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Direct Labour Variances
Example – Xonic Inc. (1 of 5)
Direct labour standard to manufacture one litre of Tonic
→ 2 hours per unit at $15 per hour
Xonic produced 1,000 litres of Tonic
Standard direct labour = 1,000 x 2 – 2,000 hours
Total standard cost = 2,000 x $15 = $30,000
Actual labour used was 2,100 hours
Actual cost was $31,080 (or $14.80 per hour)
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Direct Labour Variances
Example – Xonic Inc. (2 of 5)
The total direct labour budget variance (TDLBV)
calculation:
Total Actual Hours
(TAH) × Actual Rate
(AR)
(2,100 × $14.80)
−
Total Standard Hours
Allowed (TSHA) ×
Standard Rate (SR)
(2,000 × $15.00)
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=
Total Direct Labour
Budget Variance
(TDLBV)
$1,080 U
35
Direct Labour Variances
Example – Xonic Inc. (3 of 5)
•
•
The total variance is analyzed to determine the amount that is
attributable to price (rate) and to quantities (hours).
The labour price variance, calculated as:
Total Actual Hours (TAH)
× Actual Rate (AR)
(2,100 × $14.80)
−
Total Actual Hours (TAH) ×
Standard Rate (SR)
(2,100 × $15.00)
=
Labour Price
Variance (LPV)
$420 F
Alternative calculation:
= TAH x (AR – SP)
= 2,100 x ($14.80 - $15.00) = $420F
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Direct Labour Variances
Example – Xonic Inc. (4 of 5)
The labour quantity variance calculation:
Total Actual Hours (TAH)
× Standard Rate (SR)
(2,100 × $15.00)
−
Total Standard Hours Allowed
(TSHA) × Standard Rate (SR)
(2,000 × $15.00)
=
Labour Quantity
Variance (LQV)
$1,500 U
Alternative calculation:
= (TAH – TSHA) x SR
= (2,100 – 2,000) x $15.00 = $1,500U
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Causes Of Labour Variances
• Labour price variances usually result from either
o
o
Paying workers higher wages than expected, or
Misallocating workers (for ex., using skilled workers in
place of unskilled workers)
• Labour quantity variances relate to the efficiency of
workers and are usually related to the production
department
o
Other causes include quality of the materials used;
condition of equipment used
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38
Let’s Review 6
At the beginning of 2021, Beal Mfg. Ltd., adopted the following standards for its direct
labour costs:
Input
Direct labour
5 hours at $18 per hour
Cost per Output Unit
$ 90
During the most recent month 7,800 output units were produced with 40,100
hours used at a cost of $17.52 per hour.
What were the direct labour price variance and quantity variance, respectively?
a. $19,248F and $19,800U
b. $19,248U and $19,800F
c. $18,720F and $19,272U
d. $18,720U and $19,272F
Copyright ©2021 John Wiley & Sons Canada, Ltd.
39
Let’s Review 6: Solution
At the beginning of 2021, Beal Mfg. Ltd., adopted the following standards for its direct
labour costs:
Input
Direct labour
5 hours at $18 per hour
Cost per Output Unit
$ 90
During the most recent month 7,800 output units were produced with 40,100
hours used at a cost of $17.52 per hour.
What were the direct labour price variance and quantity variance, respectively?
a. $19,248F and $19,800U (correct answer)
b. $19,248U and $19,800F
c. $18,720F and $19,272U
d. $18,720U and $19,272F
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40
Total Overhead Variance
• The difference between actual overhead costs
incurred and overhead applied based on standard cost
drivers units (i.e. labour or machine hours) allowed for
the amount of units produced
• Process for calculating variances essentially the same
as for direct materials and direct labour
o
Complication comes in that there is both fixed and
variable overhead
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41
Total Overhead Variance
Example - Xonic Inc. (1 of 2)
•
•
•
Overhead is applied using direct labour hours (DLH) as the
application base
Direct labour standard to manufacture one litre of Tonic
→ 2 hours per unit
Predetermined overhead rate is $5 per DLH
o
•
•
•
$3 for variable overhead and $2 for fixed overhead
Overhead is applied using the standard activity base =
(1,000DLH x 2) x $5 = $10,000
Actual DLH for the period was 2,100 hours
Total actual overhead costs incurred = $11,400
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42
Total Overhead Variance
Example - Xonic Inc. (2 of 2)
• Total overhead variance is the difference between
actual overhead costs and the overhead costs
Actual Overhead
$11,400
−
Overhead Applied*
Total Standard Hours Allowed
(TSHA) × Standard Rate (SR) =
2,000 × $5 = $10,000
Total Overhead
Variance (TOHV)
$1,400 U
*Based on direct labour hours
• The variance is unfavourable because more overhead
costs were incurred than what was applied
• Next the variance is separated into the variable and
fixed overhead variances.
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Total Variable Overhead Budget Variance
Example – Xonic Inc. (1 of 5)
• The variable overhead budget variance is calculated as:
Actual Variable Overhead
−
$6,500
Variable Overhead Applied*
Total Standard Hours Allowed
(TSHA) × Standard Rate (SR)
(2,000 × $3 = $6,000
=
Total Variable
Overhead Budget
Variance (TVOHBV)
$500 U
*Based on direct labour hours
• Note that calculation is based on the standard direct
labour hours allowed for the output achieved
• Of the $11,400 total actual overhead, $6,500 was
variable overhead
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Total Variable Overhead Budget Variance
Example – Xonic Inc. (2 of 5)
•
The TVOHBV shows if variable overhead costs are being
effectively controlled
o
•
Does not however show the source of the variance
Separating the TVOHBV into a spending (price) variance
and an efficiency (quantity) variance will show if:
o
o
More, or less, overhead costs were incurred than
budgeted (spending variance); or
More, or less, activity base was used than the standard
allowed for the output achieved (efficiency variance)
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Total Variable Overhead Budget Variance
Example – Xonic Inc. (3 of 5)
• The formula for the spending (price) variance is:
Actual Variable Overhead
−
$6,500
Total Actual Hours* at
Standard Variable Overhead
Rate (TAH) × (SR)
(2,100 × $3)
=
Variable Overhead
Spending (Price)
Variance (VOHSPV)
$200 U
*Based on direct labour hours
•
•
The calculation is based on actual direct labour hours used, not
the standard hours
Based on the actual usage Xonic Inc. spent more on variable
overhead than was budgeted for
o
With 2,100 DLH variable overhead “should have been” 2,100 X
$3 = $6,300 not $6,500
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Total Variable Overhead Budget Variance
Example – Xonic Inc. (4 of 5)
•
The formula for the efficiency (quantity) variance is:
Total Actual Hours* at
Standard Variable Overhead
Rate (TAH) × (SR)
($2,100 × $3 )
−
Total Standard Hours Allowed* at
Standard Variable Overhead Rate
(TSHA) × (SR)
(2,000 × $3)
=
Variable Overhead
Efficiency Variance
(VOHEV)
$300 U
*Based on direct labour hours
•
In comparing the actual direct labour used to the standard
usage allowed for the output achieved, Xonic Inc. was not
more efficient in use of their direct labour
o
With output of 1,000 litres only 2,000 DLH should have been
used, which means variable overhead applied “should have
been”
2,000 × $3 = $6,000 not 2,100 × $3 = $6,300
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Total Fixed Overhead Variance
•
•
Total fixed overhead (FOH) variance is the difference
between the actual fixed overhead and fixed overhead
applied using the total standard activity base allowed for
the output achieved.
The fixed overhead variance can also be separated into a
spending (budget) variance and a volume variance.
o
•
Allows management to determine the cause for the
variance
There is never an FOH efficiency variance due to the
nature of fixed overhead
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Total Fixed Overhead Variance
Example - Xonic Inc. (1 of 6)
•
•
•
•
•
•
For the FOH variance we need the static (master) budget
information
At normal capacity FOH was budgeted to be $52,800 with
a total of 26,400 direct labour hours for the year
FOH Predetermined overhead rate is
= $52,800 ÷ 26,400 = $2.00 per direct labour hour
Overhead applied using the standard activity base =
(1,000DLH x 2) x $2 = $4,000
Actual DLH for the period was 2,100 hours
Total actual FOH costs incurred = $4,900
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Total Fixed Overhead Budget Variance
Example – Xonic Inc. (2 of 6)
• The total FOH is the difference between actual FOH
and FOH applied and calculated as:
Actual Fixed Overhead
−
$4,900
Fixed Overhead Applied*
Total Standard Hours Allowed
(TSHA) at Standard Rate (SR)
(2,000 × 2) = $4,000
=
Total Fixed
Overhead Variance
(TFOHV)
$900 U
*Based on direct labour hours
• The variance can now be separated into the spending
and volume variances
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Total Fixed Overhead Budget Variance
Example – Xonic Inc. (3 of 6)
• The formula for the spending (budget) variance is:
Actual Fixed Overhead
Costs
Fixed Overhead Master Budget
(Static Budget)
−
Normal Capacity Hours* at
=
Standard Fixed Overhead Rate
(NCH) × (SR)
Fixed Overhead
Spending Variance
(FOHSV)
$4,900
(2,200 × $2)
$500 U
*Based on direct labour hours
• Based on monthly normal capacity of 2,200 hours Xonic
Inc. spent more on FOH than was budgeted
o
With normal capacity of a total of 2,200 x $2 = $4,400 in
FOH costs “should have been” incurred, rather than the
actual amount of $4,900
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Total Fixed Overhead Budget Variance
Example – Xonic Inc. (4 of 6)
•
The volume variance indicates how effectively fixed
capacity is being used
o
o
Variance will be unfavourable if output is less than
budgeted
The rationale is that there is fixed capacity that is not being
utilized – the company could have achieved greater output
•
o
Producing, and thereby selling, less than they have capacity
for reduces income making this an unfavourable variance
Variance will be favourable if output is greater than
budgeted
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Total Fixed Overhead Budget Variance
Example – Xonic Inc. (5 of 6)
• The calculation for the volume variance is:
Fixed Overhead Master
Budget (Static Budget)
Normal Capacity Hours*
at Standard Fixed
Overhead Rate (NCH) ×
(SR)
(2,200 × $2)
Total Standard Hours Allowed*
− at Standard Fixed Overhead
Rate (TSHA) × (SR)
(2,000 × $2)
=
Fixed Overhead
Volume Variance
$400 U
*Based on direct labour hours
• Xonic Inc. has capacity to produce 1,100 litres of Tonic each
month (or use 2,200 labour hours)
• Only 1,000 litres were produced so the capacity was not
fully utilized
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Manufacturing Overhead Variances
In calculating the overhead variances remember:
1. Standard hours allowed are used in each of the variances.
2. The total budget overhead variance relates to total variable
overhead budget variance and the FOH spending variance only.
o
Total variable overhead budget variance = Spending variance +
Efficiency variance
3. The volume variance relates only to FOH costs, and it is also
called production volume variance.
4. Over or under-applied overhead is the difference between the
total actual overhead costs and overhead applied at the
standard allowed for the output achieved.
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54
Causes of Manufacturing
Overhead Variances (1 of 2)
• Manufacturing overhead variances may be caused by
a variety of factors
• The controllable variance relates to variable
manufacturing costs and usually is the responsibility
of the production department
o
May result from either higher than expected use of
indirect materials, indirect labour or supplies, or
increases in indirect manufacturing costs such as fuel
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55
Causes of Manufacturing
Overhead Variances (2 of 2)
• The volume variance may be the responsibility of the
production department (inefficient use of direct
labour hours) or may come from outside the
production department (lack of sales orders)
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56
Let’s Review 8
Triton Mfg. uses standard costing for its product costing. Manufacturing
overhead is applied based on standard direct labour hours (DLH). Overhead cost
information is presented below:
Input
Cost per Unit
Variable
$7.20 per DLH
36
Fixed
$9.60 per DLH
48
Total
$ 84
During the most recent month a total of 7,800 units were produced; 40,100 DLH
were used and total actual manufacturing overhead was $720,000 of which
$391,000 was fixed. What was the variable overhead efficiency variance?
a.
$7,920 F
b.
$7,920 U
c.
$40,280 F
d.
$40,280 U
Copyright ©2021 John Wiley & Sons Canada, Ltd.
57
Let’s Review 8: Solution
Triton Mfg. uses standard costing for its product costing. Manufacturing
overhead is applied based on standard direct labour hours (DLH). Overhead cost
information is presented below:
Input
Cost per Unit
Variable
$7.20 per DLH
36
Fixed
$9.60 per DLH
48
Total
$ 84
During the most recent month a total of 7,800 units were produced; 40,100 DLH
were used and total actual manufacturing overhead was $720,000 of which
$391,000 was fixed. What was the variable overhead efficiency variance?
a.
$7,920 F
b. $7,920 U (correct answer)
c.
$40,280 F
d.
$40,280 U
Copyright ©2021 John Wiley & Sons Canada, Ltd.
58
Let’s Review 9
Triton Mfg. uses standard costing with manufacturing overhead applied based on
direct labour hours (DLH). Overhead cost information is presented below:
Input
Cost per Unit
Variable
$7.20 per DLH
36
Fixed
$9.60 per DLH
48
Total
$ 84
Normal capacity for total manufacturing overhead per month is 40,000 DLH,
with budgeted FOH at $384,000. During the most recent month 7,800 units
were produced; 40,100 DLH were used and actual FOH was $391,000. What
was the FOH spending variance?
a.
$6,040 U
b.
$7,000 U
c.
$9,600 F
d.
$16,600 U
Copyright ©2021 John Wiley & Sons Canada, Ltd.
59
Let’s Review 9: Solution
Triton Mfg. uses standard costing with manufacturing overhead applied based on
direct labour hours (DLH). Overhead cost information is presented below:
Input
Cost per Unit
Variable
$7.20 per DLH
36
Fixed
$9.60 per DLH
48
Total
$ 84
Normal capacity for total manufacturing overhead per month is 40,000 DLH,
with budgeted FOH at $384,000. During the most recent month 7,800 units
were produced; 40,100 DLH were used and actual FOH was $391,000. What
was the FOH spending variance?
a.
$6,040 U
b. $7,000 U (correct answer)
c.
$9,600 F
d.
$16,600 U
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60
Reporting Variances
•
•
•
•
All variances should be reported to appropriate levels of
management as soon as possible so that corrective action
can be taken
The form, content, and frequency of variance reports vary
considerably among companies
Variance reports facilitate the principle of “management
by exception”
In using variance reports, top management normally looks
for significant variances
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61
Statement Presentation of Variances
(1 of 2)
• In income statements prepared for management
under a standard cost accounting system, the cost of
goods sold is stated at standard cost and the
variances are disclosed separately
• Variances may also be shown in a contribution margin
income statement format.
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62
Statement Presentation of Variances
(2 of 2)
• Inventories may be reported at standard costs when
there are no significant differences between standard
and actual costs.
o
If there are significant differences between actual and
standard costs, inventories and the cost of goods sold
must be reported at actual costs.
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63
Homework
- Tutorial groupwork
- Homework check
Due Apr 11
E12.23
E12.26
E12.27
P12.44A
P12.47A
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