Standard Costs and
Operating Performance
Measures
Chapter 11
Standard Costs
Standards are benchmarks or “norms” for
measuring performance. In managerial accounting,
two types of standards are commonly used.
Quantity standards
specify how much of an
input should be used to
make a product or
provide a service.
Price standards
specify how much
should be paid for
each unit of the
input.
Examples: Firestone, Sears, McDonald’s, hospitals,
construction and manufacturing companies.
Standard Costs
Amount
Deviations from standards deemed significant
are brought to the attention of management, a
practice known as management by exception.
Standard
Direct
Labor
Direct
Material
Manufacturing
Overhead
Type of Product Cost
Variance Analysis Cycle
Identify
questions
Receive
explanations
Take
corrective
actions
Conduct next
period’s
operations
Analyze
variances
Prepare standard
cost performance
report
Begin
Setting Standard Costs
Accountants, engineers, purchasing
agents, and production managers
combine efforts to set standards that encourage
efficient future operations.
Setting Standard Costs
Should we use
ideal standards that
require employees to
work at 100 percent
peak efficiency?
Engineer
I recommend using practical
standards that are currently
attainable with reasonable
and efficient effort.
Managerial Accountant
How direct materials
standards and direct labor
standards are set.
Setting Direct Material
Standards
Price
Standards
Quantity
Standards
Final, delivered
cost of materials,
net of discounts.
Summarized in
a Bill of Materials.
Setting Direct Labor
Standards
Rate
Standards
Time
Standards
Often a single
rate is used that reflects
the mix of wages earned.
Use time and
motion studies for
each labor operation.
Setting Variable
Manufacturing Overhead
Standards
Rate
Standards
Quantity
Standards
The rate is the
variable portion of the
predetermined overhead
rate.
The quantity is
the activity in the
allocation base for
predetermined overhead.
Standard Cost Card –
Variable Production Cost
A standard cost card for one unit of
product might look like this:
Inputs
Direct materials
Direct labor
Variable mfg. overhead
Total standard unit cost
A
B
AxB
Standard
Quantity
or Hours
Standard
Price
or Rate
Standard
Cost
per Unit
3.0 lbs.
2.5 hours
2.5 hours
$ 4.00 per lb.
$
14.00 per hour
3.00 per hour
$
12.00
35.00
7.50
54.50
Price and Quantity Standards
Price and quantity standards are
determined separately for two reasons:
The purchasing manager is responsible for raw
material purchase prices and the production manager
is responsible for the quantity of raw material used.
 The buying and using activities occur at different times.
Raw material purchases may be held in inventory for a
period of time before being used in production.
A General Model for Variance
Analysis
Variance Analysis
Price Variance
Quantity Variance
Difference between
actual price and
standard price
Difference between
actual quantity and
standard quantity
A General Model for Variance
Analysis
Variance Analysis
Price Variance
Quantity Variance
•Materials price variance
•Labor rate variance
•VOH rate variance
•Materials quantity variance
•Labor efficiency variance
•VOH efficiency variance
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Actual quantity is the amount of direct
materials, direct labor, and variable
manufacturing overhead actually used.
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Standard quantity is the standard quantity
allowed for the actual output of the period.
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Actual price is the amount actually
paid for the input used.
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
Standard Quantity
×
Standard Price
Quantity Variance
Standard price is the amount that should
have been paid for the input used.
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Rate/Price Variance
PV = AQ (AP - SP)
(AQ × AP) – (AQ × SP)
AQ = Actual Quantity
AP = Actual Price
Standard Quantity
×
Standard Price
Usage/Quantity Variance
QV = SP (AQ - SQ)
(AQ × SP) – (SQ × SP)
SP = Standard Price
SQ = Standard Quantity
Compute the direct
materials price and
quantity variances and
explain their significance.
Material Variances – An
Example
Glacier Peak Outfitters has the following direct
material standard for the fiberfill in its mountain
parka.
0.1 kg. of fiberfill per parka at $5.00 per kg.
Last month 210 kgs. of fiberfill were purchased and
used to make 2,000 parkas. The material cost a
total of $1,029 @ $4.90/kgs
Material Variances Summary
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
210 kgs.
×
$4.90 per kg.
210 kgs.
×
$5.00 per kg.
= $1,029
Price variance
$21 favorable
= $1,050
Standard Quantity
×
Standard Price
200 kgs.
×
$5.00 per kg.
= $1,000
Quantity variance
$50 unfavorable
Material Variances Summary
Actual Quantity
×
Actual Price
210 kgs.
×
$4.90 per kg.
Actual Quantity
×
Standard Price
210 kgs.
× kgs
$1,029  210
$5.00per
perkg
kg.
= $4.90
= $1,029
Price variance
$21 favorable
= $1,050
Standard Quantity
×
Standard Price
200 kgs.
×
$5.00 per kg.
= $1,000
Quantity variance
$50 unfavorable
Material Variances Summary
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Standard Quantity
×
Standard Price
210 kgs.
210 kgs.
200 kgs.
×
×
0.1 kg per parka ×
 2,000 parkas
$4.90 per kg.
$5.00
$5.00 per kg.
= 200 per
kgs kg.
= $1,029
Price variance
$21 favorable
= $1,050
= $1,000
Quantity variance
$50 unfavorable
Material Variances:
Using the Factored Equations
Materials price variance
MPV = AQ (AP - SP)
= 210 kgs ($4.90/kg - $5.00/kg)
= 210 kgs (-$0.10/kg)
= $21 F
Materials quantity variance
MQV = SP (AQ - SQ)
= $5.00/kg (210 kgs-(0.1 kg/parka  2,000 parkas))
= $5.00/kg (210 kgs - 200 kgs)
= $5.00/kg (10 kgs)
= $50 U
Isolation of Material
Variances
I need the price variance
sooner so that I can better
identify purchasing problems.
You accountants just don’t
understand the problems that
purchasing managers have.
I’ll start computing
the price variance
when material is
purchased rather
than when it’s used.
Material Variances
A Business purchased
and used 1,700 pounds.
How are the variances
computed if the amount
purchased differs from
the amount used?
The price variance is
computed on the entire
quantity purchased.
The quantity variance
is computed only on
the quantity used.
Responsibility for Material Variances
Materials Quantity Variance
Production Manager
Materials Price Variance
Purchasing Manager
The standard price is used to compute the quantity variance
so that the production manager is not held responsible for
the purchasing manager’s performance.
Responsibility for Material Variances
I am not responsible for
this unfavorable material
quantity variance.
You purchased cheap
material, so my people
had to use more of it.
Your poor scheduling
sometimes requires me to
rush order material at a
higher price, causing
unfavorable price variances.
Quick Check 
Hanson Inc. has the following direct material
standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 1,700 pounds of material were
purchased and used to make 1,000 Zippies. The
material cost a total of $6,630.
Quick Check 
Hanson’s material price variance (MPV)
for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
Quick Check 
Hanson’s material price variance (MPV)
for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
MPV = AQ(AP - SP)
MPV = 1,700 lbs. × ($3.90 d. $800 favorable.4.00)
MPV = $170 Favorable
Quick Check 
Hanson’s material quantity variance (MQV)
for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
Quick Check 
Hanson’s material quantity variance (MQV)
for the week was:
a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.MQV = SP(AQ - SQ)
MQV = $4.00(1,700 lbs - 1,500 lbs)
MQV = $800 unfavorable
Quick Check 
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Standard Quantity
×
Standard Price
1,700 lbs.
×
$3.90 per lb.
1,700 lbs.
×
$4.00 per lb.
1,500 lbs.
×
$4.00 per lb.
= $6,630
= $ 6,800
= $6,000
Price variance
$170 favorable
Quantity variance
$800 unfavorable
Quick Check  Continued
Hanson Inc. has the following material standard to
manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 2,800 pounds of material were
purchased at a total cost of $10,920, and 1,700
pounds were used to make 1,000 Zippies.
Quick Check  Continued
Actual Quantity
Purchased
×
Actual Price
Actual Quantity
Purchased
×
Standard Price
2,800 lbs.
×
$3.90 per lb.
2,800 lbs.
×
$4.00 per lb.
= $10,920
= $11,200
Price variance
$280 favorable
Price variance increases
because quantity
purchased increases.
Quick Check  Continued
Actual Quantity
Used
×
Standard Price
Standard Quantity
×
Standard Price
1,700 lbs.
×
$4.00 per lb.
1,500 lbs.
×
$4.00 per lb.
= $6,800
= $6,000
Quantity variance is
unchanged because
actual and standard
quantities are unchanged.
Quantity variance
$800 unfavorable
Compute the direct labor
rate and efficiency
variances and explain
their significance.
Labor Variances – An
Example
Glacier Peak Outfitters has the following direct labor
standard for its mountain parka.
$12 standard cost per parka, for 1900 parkas
Last month, employees actually worked 2,500 hours
at a total labor cost of $13.125 to make 2,000
parkas.
Labor Variances Summary
Actual Units
×
Actual Rate
2,000 parkas
×
$13.125 per hour
= $26,250
Actual Units
×
Standard Rate
2,000 parkas
×
$12.00 per hour.
= $24,000
Rate variance
$2,250 unfavorable
Standard Units
×
Standard Rate
1,900 parkas
×
$12.00 per hour
= $22,800
Usage variance
$1200 unfavorable
Labor Variances – An
Example
Glacier Peak Outfitters has the following direct labor
standard for its mountain parka.
1.2 standard hours per parka at $10.00 per hour =
$12/parka
Last month, employees actually worked 2,500 hours
at a total labor cost of $26,250 to make 2,000
parkas.
Labor Variances Summary
Actual Hours
×
Actual Rate
Actual Hours
×
Standard Rate
2,500 hours
×
$10.50 per hour
2,500 hours
×
$10.00 per hour.
= $26,250
= $25,000
Rate variance
$1,250 unfavorable
Standard Hours
×
Standard Rate
2,400 hours
×
$10.00 per hour
= $24,000
Efficiency variance
$1,000 unfavorable
Labor Variances Summary
Actual Hours
×
Actual Rate
2,500 hours
×
$10.50 per hour
= $26,250
Actual Hours
×
Standard Rate
Standard Hours
×
Standard Rate
2,500 hours
2,400 hours
×
$26,250×
 2,500 hours
$10.00
per hour.
= $10.50
per hour $10.00 per hour
= $25,000
Rate variance
$1,250 unfavorable
= $24,000
Efficiency variance
$1,000 unfavorable
Labor Variances Summary
Actual Hours
×
Actual Rate
Actual Hours
×
Standard Rate
Standard Hours
×
Standard Rate
2,500 hours
2,500 hours
2,400 hours
×
×  2,000
×
1.2 hours per parka
$10.50 per hour parkas
$10.00
per hour.
$10.00 per hour
= 2,400
hours
= $26,250
= $25,000
Rate variance
$1,250 unfavorable
= $24,000
Efficiency variance
$1,000 unfavorable
Labor Variances:
Using the Factored Equations
Labor rate variance
LRV = AH (AR - SR)
= 2,500 hours ($10.50 per hour – $10.00 per hour)
= 2,500 hours ($0.50 per hour)
= $1,250 unfavorable
Labor efficiency variance
LEV = SR (AH - SH)
= $10.00 per hour (2,500 hours – 2,400 hours)
= $10.00 per hour (100 hours)
= $1,000 unfavorable
Responsibility for Labor
Variances
Production managers
are usually held
accountable
for labor variances
because they can
influence the:
Mix of skill levels
assigned to work tasks.
Level of employee
motivation.
Quality of production
supervision.
Quality of training
provided to employees.
Responsibility for Labor
Variances
I am not responsible for
the unfavorable labor
efficiency variance!
You purchased cheap
material, so it took more
time to process it.
I think it took more time
to process the
materials because the
Maintenance
Department has poorly
maintained your
equipment.
Quick Check 
Hanson Inc. has the following direct labor
standard to manufacture one Zippy:
1.5 standard hours per Zippy at
$12.00 per direct labor hour
Last week, 1,550 direct labor hours were
worked at a total labor cost of $18,910
to make 1,000 Zippies.
Quick Check 
Hanson’s labor rate variance (LRV) for the
week was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
Quick Check 
Hanson’s labor rate variance (LRV) for the
week was:
a. $310 unfavorable.
b. $310 favorable.
LRV = AH(AR - SR)
c. $300 unfavorable.
LRV = 1,550 hrs($12.20 - $12.00)
d. $300 favorable.LRV = $310 unfavorable
Quick Check 
Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
Quick Check 
Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
LEV = SR(AH - SH)
LEV = $12.00(1,550 hrs - 1,500 hrs)
LEV = $600 unfavorable
Quick Check 
Actual Hours
×
Actual Rate
Actual Hours
×
Standard Rate
1,550 hours
×
$12.20 per hour
1,550 hours
×
$12.00 per hour
= $18,910
= $18,600
Rate variance
$310 unfavorable
Standard Hours
×
Standard Rate
1,500 hours
×
$12.00 per hour
= $18,000
Efficiency variance
$600 unfavorable
Compute the variable
manufacturing overhead
rate and efficiency
variances.
A General Model for Variance
Analysis
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Rate/Price Variance
PV = AQ (AP - SP)
(AQ × AP) – (AQ × SP)
AQ = Actual Quantity
AP = Actual Price
Standard Quantity
×
Standard Price
Usage/Quantity Variance
QV = SP (AQ - SQ)
(AQ × SP) – (SQ × SP)
SP = Standard Price
SQ = Standard Quantity
Variable Manufacturing
Overhead Variances – An
Example
Glacier Peak Outfitters has the following direct variable
manufacturing overhead labor standard for its mountain
parka.
1.2 standard hours per parka at $4.00 per hour
Last month, employees actually worked 2,500 hours to make
2,000 parkas. Actual variable manufacturing overhead for
the month was $10,500.
Variable Manufacturing
Overhead Variances
Summary
Actual Hours
Actual Hours
Standard Hours
×
Actual Rate
×
Standard Rate
×
Standard Rate
2,500 hours
×
$4.20 per hour
2,500 hours
×
$4.00 per hour
2,400 hours
×
$4.00 per hour
= $10,500
= $10,000
= $9,600
Rate variance
$500 unfavorable
Efficiency variance
$400 unfavorable
Variable Manufacturing
Overhead Variances
Summary
Actual Hours
Actual Hours
Standard Hours
×
Actual Rate
2,500 hours
×
$4.20 per hour
= $10,500
×
Standard Rate
×
Standard Rate
2,500 hours
2,400 hours
×
$10,500 ×
 2,500 hours
$4.00
per per
hourhour
$4.00 per hour
= $4.20
= $10,000
Rate variance
$500 unfavorable
= $9,600
Efficiency variance
$400 unfavorable
Variable Manufacturing
Overhead Variances
Summary
Actual Hours
Actual Hours
Standard Hours
×
Actual Rate
×
Standard Rate
2,500 hours
2,500 hours
×
×  2,000
1.2 hours per parka
$4.20 per hour parkas
$4.00
per hour
= 2,400
hours
= $10,500
= $10,000
Rate variance
$500 unfavorable
×
Standard Rate
2,400 hours
×
$4.00 per hour
= $9,600
Efficiency variance
$400 unfavorable
Variable Manufacturing
Overhead Variances: Using
Factored Equations
Variable manufacturing overhead rate variance
VMRV = AH (AR - SR)
= 2,500 hours ($4.20 per hour – $4.00 per hour)
= 2,500 hours ($0.20 per hour)
= $500 unfavorable
Variable manufacturing overhead efficiency variance
VMEV = SR (AH - SH)
= $4.00 per hour (2,500 hours – 2,400 hours)
= $4.00 per hour (100 hours)
= $400 unfavorable
Quick Check 
Hanson Inc. has the following variable
manufacturing overhead standard to
manufacture one Zippy:
1.5 standard hours per Zippy at
$3.00 per direct labor hour
Last week, 1,550 hours were worked to make
1,000 Zippies, and $5,115 was spent for
variable manufacturing overhead.
Quick Check 
Hanson’s rate variance (VMRV) for variable
manufacturing overhead for the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.
Quick Check 
Hanson’s rate variance (VMRV) for variable
manufacturing overhead for the week was:
a. $465 unfavorable.
b. $400 favorable.
VMRV = AH(AR - SR)
c. $335 unfavorable.
VMRV = 1,550 hrs($3.30 - $3.00)
d. $300 favorable. VMRV = $465 unfavorable
Quick Check 
Hanson’s efficiency variance (VMEV) for
variable manufacturing overhead for the week
was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable.
d. $150 favorable.
Quick Check 
Hanson’s efficiency variance (VMEV) for
variable manufacturing overhead for the week
was:
a. $435 unfavorable.
b. $435 favorable.
1,000 units × 1.5 hrs per unit
c. $150 unfavorable.
d. $150 favorable.
VMEV = SR(AH - SH)
VMEV = $3.00(1,550 hrs - 1,500 hrs)
VMEV = $150 unfavorable
Quick Check 
Actual Hours
×
Actual Rate
Actual Hours
×
Standard Rate
Standard Hours
×
Standard Rate
1,550 hours
×
$3.30 per hour
1,550 hours
×
$3.00 per hour
1,500 hours
×
$3.00 per hour
= $5,115
= $4,650
Rate variance
$465 unfavorable
= $4,500
Efficiency variance
$150 unfavorable
Variance Analysis and
Management by Exception
How do I know
which variances to
investigate?
Larger variances, in
dollar amount or as
a percentage of the
standard, are
investigated first.
A Statistical Control Chart
Warning signals for investigation
Favorable Limit
•
Desired Value
•
•
•
•
•
•
Unfavorable Limit
1
2
3
4
5
6
7
Variance Measurements
•
8
•
9
Advantages of Standard
Costs
Management by
exception
Promotes economy
and efficiency
Advantages
Simplified
bookkeeping
Enhances
responsibility
accounting
Potential Problems with
Standard Costs
Emphasizing standards
may exclude other
important objectives.
Standard cost
reports may
not be timely.
Invalid assumptions
about the relationship
between labor
cost and output.
Potential
Problems
Favorable
variances may
be misinterpreted.
Emphasis on
negative may
impact morale.
Continuous
improvement may
be more important
than meeting standards.
Compute delivery cycle
time, throughput time, and
manufacturing cycle
efficiency (MCE).
Delivery Performance
Measures
Order
Received
Wait Time
Production
Started
Goods
Shipped
Process Time + Inspection Time
+ Move Time + Queue Time
Throughput Time
Delivery Cycle Time
Process time is the only value-added time.
Delivery Performance Measures
Order
Received
Wait Time
Production
Started
Goods
Shipped
Process Time + Inspection Time
+ Move Time + Queue Time
Throughput Time
Delivery Cycle Time
Manufacturing
Cycle
=
Efficiency
Value-added time
Manufacturing cycle time
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the throughput time?
a. 10.4 days.
b. 0.2 days.
c. 4.1 days.
d. 13.4 days.
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the throughput time?
a. 10.4 days.
b. 0.2 days.
Throughput
time = Process + Inspection + Move + Queue
c. 4.1 days.
= 0.2 days + 0.4 days + 0.5 days + 9.3 days
d. 13.4 days.
= 10.4 days
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the Manufacturing Cycle Efficiency (MCE)?
a. 50.0%.
b. 1.9%.
c. 52.0%.
d. 5.1%.
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the Manufacturing Cycle Efficiency (MCE)?
a. 50.0%.
b. 1.9%. MCE = Value-added time ÷ Throughput time
c. 52.0%.
= Process time ÷ Throughput time
d. 5.1%.
= 0.2 days ÷ 10.4 days
= 1.9%
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the delivery cycle time (DCT)?
a. 0.5 days.
b. 0.7 days.
c. 13.4 days.
d. 10.4 days.
Quick Check 
A TQM team at Narton Corp has recorded the following
average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Move 0.5 days
Queue 9.3 days
What is the delivery cycle time (DCT)?
a. 0.5 days.
b. 0.7 days.
c. 13.4 days.
d. 10.4 days.
DCT = Wait time + Throughput time
= 3.0 days + 10.4 days
= 13.4 days
Demonstration Case 3
Usage and Cost Variances
Variable Costs Per
Unit
Standard
Actual
Direct Materials Cost
$16.00
$16.34
Direct Labor Cost
12.00
10.92
Overhead Cost
14.00
14.20
Total
$42.00
41.46
$120,400
$114,000
43,000
44,000
Expected Fixed Cost
Manufacturing
# of Units
Demonstration Case
Material Usage and Cost Variances
Variable Costs Per
Unit
Standard
Actual
Direct Materials Cost
$16.00
$16.34
# board Feet/unit
8 ft
8.6 ft
Cost per bd foot
$2
$1.90
Material Flexible-Budget Variances
Total flexible-budget variance
= Total actual results
– Total flexible-budget planned results
Actual
Results
16.34 x 44,000
$(718,960)
$14,960 Unfavorable
Flexible-budget variances
Flexible
Budget
16.00 x 44,000
$(704,000)
Material Cost and
Volume Variances
Actual Cost
Column
Variance Dividing
Column
Actual Quantity
44,000
Used
×
×
8.6 ft
Actual (fixed) Cost
x
$1.90
$718,960
Flexible Standard Cost
Column
Standard
Actual Quantity
44,000
44,000
Quantity
Used
x
x
×
×
8 ft
Standard (fixed) Cost 8.6 ft Standard (fixed) Cost
x
x
$2/ft
$2/ ft
$704,000
756,800
Cost Variance
$37,960 Favorable
Volume Variance
$52,800 Unfavorable
Total Variance
$14,960 UnFavorable
Demonstration Case
Labor Usage and Cost
Variances
Variable Costs Per
Unit
Standard
Actual
Direct Labor Cost
$12.00
$10.92
# hours /unit
1.5 hr
1.4 hrs
Labor cost/hr
$8.00
$7.80
Labor Flexible-Budget Variances
Total flexible-budget variance
= Total actual results
– Total flexible-budget planned results
Actual
Results
10.92 x 44,000
$(480,480)
$47,520 Favorable
Flexible-budget variances
Flexible
Budget
12.00 x 44,000
$(528,000)
Labor Cost and
Volume Variances
Actual Cost
Column
Variance Dividing
Column
Flexible Standard Cost
Column
Standard
Actual Quantity
44,000
44,000
44,000
Quantity
Used
x
x
×
×
×
1.5 hr
1.4 hr Standard (fixed) Cost 1.4 hr Standard (fixed) Cost
x
x
x
$ 8.00
$7.80
$ 8.00
$528,000
$480,480
492,800
Actual Quantity
Used
×
Actual (fixed) Cost
Cost Variance
$12,320 Favorable
Total Variance
$47,520 Favorable
Volume Variance
$35,200 Favorable
Demonstration Case
Variable MFG Overhead Usage and
Cost Variances
Variable Costs Per
Unit
Standard
Actual
Overhead Cost
$14.00
$14.20
Variable MFG Overhead Flexible-Budget
Variances
Total flexible-budget variance
= Total actual results
– Total flexible-budget planned results
Actual
Results
14.20 x 44,000
$(624,000)
$8,800 Unfavorable
Flexible-budget variances
Flexible
Budget
14.00 x 44,000
$(616,000)
Demonstration Case
Summary of Usage and Cost Variances
Variable Costs Per
Unit
Standard
Actual
Variance
Direct Materials Cost
$16.00
$16.34
$14, 960 UF
Direct Labor Cost
12.00
10.92
$ 47,520 F
Overhead Cost
14.00
14.20
$ 8,800 UF
Total
$42.00
41.46
$ 23,760 F
$120,400
$114,000
$ 6,400 F
43,000
44,000
Expected Fixed Cost
Manufacturing
# of Units
Demonstration Case
Fixed Overhead Volume and
SpendingVariances
Variable Costs Per
Unit
Standard
Actual
OVH Cost
$120,400
$114,000
Cost/unit
2.80
2.59
Total Units
43,000
44,000
(114,000/44,000=2.59)
Fixed Overhead FlexibleBudget Variances
Total flexible-budget variance
= Total actual results
– Total flexible-budget planned results
Actual
Results
2.59 x 44,000
$(114,000) rnd
$6,400 Favorable
Flexible-budget variances
Master
Budget
2.80 x 43,000
$(120,400)
Fixed Overhead Spending and
Volume Variances
Actual Cost
Column
Master Budget Dividing
Column
Actual Quantity
44,000
Used
×
×
2.59
Actual (fixed) Cost
Flexible Standard Cost
Column
Actual
Standard Quantity
43,000
Quantity
Used
x
×
×
Standard (fixed) Cost 2.80 Standard (fixed) Cost
114,000
$123,200
120,400
Spending Variance
$6,400 Favorable
44,000
x
2.80
Volume Variance
$2,800 Favorable
Total Variance
$9,200 Favorable
Assignments:
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