Cost acc 2
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: www.jakartaprofessional.wordpress.com 1

(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:
Actual quantity purchased actual quantity purchased
Materials purchase price variance
Actual quantity used
Meters of pipe
100,000
100,000
-----------
100,000
=======
87,300
Unit Cost
$0.78 actual
$0.80 standard
-----------
$(0.02)
=======
0.80 standard
Amount
$78,000
$80,000
-----------
$(2,000) fav.
=======
$69,840 www.jakartaprofessional.wordpress.com 2

Standard quantity allowed
Materials quantity variance
86,400
-------------
900
=======
0.80 standard
-------------
0.80
=======
$69120
-------------
$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.
Factory Overhead Variance Analysis:
Example:
The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is:
Fixed:
Variable:
$4,500 / 5,000 hours = $0.90
$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. www.jakartaprofessional.wordpress.com 3

ANSWER:
Two Variance Method:
Actual factory overhead
Budgeted allowance based on standard hours allowed:
Fixed expenses budgeted
Variable expenses (4,500 standard hours allowed ×
$1.50 variable overhead rate)
Favorable controllable variance
Budgeted allowance based on standard hours allowed
Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)
Unfavorable volume variance
Three Variance Method:
Actual factory overhead
Budgeted allowance based on actual hours worked:
Fixed expenses budgeted
Variable expenses (4,400 actual hours worked ×
$1.50 variable overhead rate)
Favorable spending variance
Budgeted allowance based on actual hours worked
Actual hours worked × Standard overhead rate (4,400 hours × $2.40)
Unfavorable spending variance
Actual hours worked × Standard overhead rate (4,400 hours × $2.40)
Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)
Favorable efficiency variance
Four Variance Method:
Actual factory overhead
Budgeted allowance based on actual hours worked:
Fixed expense budgeted
Variable expenses (4,400 actual hours worked
× $1.50 variable overhead rate)
$4,500
$6,600
-----------
$4,500
$6,750
-----------
$4,500
$6,600
-----------
$11,000
$11,250
-----------
$ (250) fav.
======
$11,250
$10,800
------------
$450 unfav.
$11,000
$11,100
-----------
$ (100) fav.
======
$11,100
$10,560
------------
$540 unfav.
======
$10,560
$10,800
-----------
$ (240) fav.
$11,000
$11,100 www.jakartaprofessional.wordpress.com 4

Favorable spending variance
Budgeted allowance based on actual hours worked
Budgeted allowance based on standard hours allowed
Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed overhead rate)
Standard hours allowed × fixed overhead rate
(4,500 actual hours × $0.90)
Favorable variable overhead efficiency variance
Favorable fixed overhead efficiency variance
Normal capacity hours (5000) × Fixed overhead rate ($0.90)
Actual hours worked (4,400) × Fixed overhead rate ($0.90)
Unfavorable Idle capacity variance (600 hours ×
$0.90)
-----------
$ (100) fav.
======
$11,100
$11,250
-----------
$ (150) fav.
======
$3,960
4,050
-----------
$ (90) fav.
======
$4,500
$3,960
------------
$540 unfav. www.jakartaprofessional.wordpress.com 5