Direct Labor
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Chapter 2 CGM 1) Manufacturing Cost: All cost incurred in production of finish goods in factory (DM+DL+FOH) a. – Direct Material & Indirect Material b. – Direct Labor & Indirect Labor c. – Factory Overhead i. IDM ii. IDL iii. . . . production/factory iv. Idle cost – Cost that occur when machine breakdown, material shortage) v. Overtime cost – Cost paid above the normal rate 2) Nonmanufacturing Cost: Selling Cost and Administrative Cost(Put in I/S) Prime Cost = DM + DL Conversion Cost = DL + FOH Cost Behavior Classification 1) Variable Cost – cost that is constant in per unit 2) Fixed Cost - cost that is constant in total 3) Mixed Cost – cost that incurred both fixed and variable cost Example Chapter 4 Cost Volume Profit Relation - To understand the interrelationship between cost, volume, and profit in an organization by focusing on interactions between the following 5 elements 1. Price of products 2. Per unit variable cost 3. Total fixed cost 4. Volume or level of activity 5. Mix of products sold Formula Profits = Sales - Variable expenses - Fixed expenses A Ratio > > π΄ πππ‘ππ ππππ Sale – TVC – TFC = IBT ππΉπΆ Break Even Sale (units) = πΆππ ππΉπΆ Break Even Sale (dollars) πΆπ π ππ‘ππ ππΌ IBT = 1−πππ₯ π ππ‘ππ Sale Mix (Produce at least 2 products) - ππΉπΆ BEP ($) = ππ£πππππ πΆπ πππ‘ππ Unit sales to attain target profits = Dollar sales to attain target profits = Margin of safety percentage = Margin of safety in dollars = Total sales – Break-even sales Overall CM ratio = Chapter 11 & 12 Flexible Variance Favorable and Unfavorable Variances Favorable variances arise when actual results exceed budgeted. Unfavorable variances arise when actual results fall below budgeted. Favorable (F) versus Unfavorable (U) Variances Profits Revenue Costs Actual > Expected F F U Actual < Expected U U F Types of Favorable and Unfavorable Variances Favorable profit variances arise when actual profits exceed budgeted profits. Unfavorable profit variance occurs when actual profit falls below budgeted profit. Actual revenues that exceed budgeted revenues result in favorable revenue variances, and actual revenues that fall short of budgeted revenues result in unfavorable revenue variances. When actual costs exceed budgeted costs, we have unfavorable cost variances; when actual costs are less than budgeted costs, we have favorable cost variances. The favorable and unfavorable labels indicate only the directional relationships summarized in the charts—they do not indicate that the explanation for the variance is necessarily good or bad. Definition Actual Cost – Actually cost incurred Standard (Budgets) – A norm for measuring the performance Template Direct Material AQ(pur) X AP AQ(pur) X SP AQ(used)X SP Price Variance SQ(used)X SP Quantity Variance Total Direct Material budget Variance Direct Labor AH X AR AH X SR Rate Variance SH X SR Efficiency Variance Total Direct Labor Budget Variance Variable Overhead AH X AR AH X SR SH X SR Spending Variance Efficiency Variance Total Variable Overhead Fixed Overhead Actual Cost Standard Cost Budget Variance Standard (FFOH) Volume Variance Total Flexible Budget Variance Standard Cost Card Standard Quantity(Q/unit) DM DL VFOH FFOH Standard Price($/Q) Standard Cost($/Unit) Example (1) Standard cost: $33.75 (3) 2.70 yards per backpack Celtron Inc. produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials ? $6.50 per yard ? Direct labor ? ? ? Variable manufacturing overhead ? $2.80 per direct-labor hour ? Total standard cost ? Overhead is applied to production on the basis of direct labor-hours. During September, 1,000 backpacks were manufactured and sold. Selected information relating to the month’s production is given below: Materials Used Direct Labor Variable Manufacturing Overhead Total standard cost allowed for the month’s production $17,550 $12,000 $4,200 Actual costs incurred $14,700 ? $3,500 Materials price variance ? Materials quantity variance $650 U Labor rate variance ? Labor efficiency variance ? Variable overhead spending variance ? Variable overhead efficiency variance ? The following additional information is available for September’s production: Actual direct labor-hours 1,600 Difference between standard and actual cost per backpack produced during September $2.15 F There were no beginning or ending inventories of raw materials. Required: 1. What is the standard cost of a single backpack? 2. What was the actual cost per backpack produced during September? 3. How many yards of material are required at standard per backpack? 4. What was the materials price variance for September? 5. What is the standard direct labor rate per hour? 6. What was the labor rate variance for September? The labor efficiency variance? 7. What was the variable overhead spending variance for September? The variable overhead efficiency variance? 8. Prepare a standard cost card for one backpack. 1. Standard cost for September production: Materials................................................................................................... Direct labor............................................................................................... Variable manufacturing overhead ............................................................ Total standard cost (a) .................................................................................. $17,550 12,000 4,200 $33,750 Number of backpacks produced (b) ............................................................ 1,000 Standard cost of a single backpack (a) ÷ (b) ............................................. $33.75 2. Standard cost of a single backpack (above) ................................................ Deduct favorable variance between standard and actual cost ..................... Actual cost per backpack ............................................................................. 3. Total standard cost of materials used during September (a) ................... Number of backpacks produced during September (b) ........................... Standard materials cost per backpack (a) ÷ (b) ....................................... $33.75 (2.15) $31.60 $17,550 1,000 $17.55 Standard materials cost per backpack $17.55 per backpack = Standard materials cost per yard $6.50 per yard = 2.70 yards per backpack 4. Standard cost of material used .................................. Actual cost of material used ................................... Total variance ......................................................... $17,550 14,700 $ 2,850 F Because there were no beginning or ending raw materials inventories, the materials purchased were all used in production during the month. Therefore, the price and quantity variances together equal the total variance. If the quantity variance is $650 U, then the price variance must be $3,500 F: Price variance .................................................... Quantity variance .............................................. Total variance .................................................... Alternative Solution: $3,500 F 650 U $2,850 F Actual Quantity of Input, at Actual Price (AQ × AP) Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Actual Output, at Standard Price (AQ × SP) (SQ × SP) 2,800 yards × $5.25 per yard = $14,700* 2,800 yards × $6.50 per yard* = $18,200 2,700 yards** × $6.50 per yard* = $17,550* ο Price Variance, $3,500 F ο Quantity Variance, $650 U* ο Total Variance, $2,850 F *Given. **1,000 units × 2.70 yards per unit = 2,700 yards 5. The first step in computing the standard direct labor rate is to determine the standard direct labor-hours allowed for the month’s production. The standard direct labor-hours can be computed by working with the variable manufacturing overhead cost figures, since they are based on direct labor-hours worked: Standard variable manufacturing overhead cost for September (a) ... Standard variable manufacturing overhead rate per direct laborhour (b) ........................................................................................... Standard direct labor-hours for September (a) ÷ (b) .......................... $4,200 $2.80 1,500 Total standard direct labor cost for September $12,000 = Total standard direct labor-hours for September 1,500 DLHs =$8.00 per DLH 6. Before the labor variances can be computed, it is first necessary to compute the actual direct labor cost for the month: Actual cost per backpack produced (part 2) ............................. Number of backpacks produced................................................ Total actual cost of production .................................................. Less: Actual cost of materials ................................................... Actual cost of variable manufacturing overhead .......... Actual cost of direct labor ......................................................... $31.60 × 1,000 $31,600 $14,700 3,500 18,200 $13,400 With this information, the variances can be computed: Actual Hours of Input, at the Actual Rate (AH × AR) Actual Hours of Input, at the Standard Rate (AH × SR) Standard Hours Allowed for Actual Output, at the Standard Rate (SH × SR) 1,600 hours* × $8.00 per hour = $12,800 $12,000* $13,400 ο Rate Variance, $600 U ο Efficiency Variance, $800 U Total Variance, $1,400 U *Given. ο 7. Actual Hours of Input, at the Actual Rate (AH × AR) Actual Hours of Input, at the Standard Rate (AH × SR) Standard Hours Allowed for Actual Output, at the Standard Rate (SH × SR) 1,600 hours* × $2.80 per hour* = $4,480 $4,200* $3,500* ο Spending Variance, $980 F ο Efficiency Variance, $280 U ο Total Variance, $700 F *Given. 8. Direct materials ........................... Direct labor .................................. Variable manufacturing overhead Total standard cost per backpack. 1 Standard Quantity or Hours per Backpack 2.70 yards1 1.50 hours2 1.50 hours Standard Price or Rate $6.50 per yard $8.00 per hour3 $2.80 per hour From part 3. 1,500 standard hours (from part 5) ÷ 1,000 backpacks = 1.50 hours per backpack. 3 From part 5. 2 Standard Cost per Backpack $17.55 12.00 4.20 $33.75 CH 10 Master Budget (Example) Note* - In midterm will be merchandise firm only Referred from: Sheet from Dr. Surasakdi http://www.sbccaccounting.com/Ch.9Bu dgetingExample.pdf Sheet from Tutor P.Tum Excellent
