Topic 11 A181 - Variance Analysis
Topic 11 A181 - Variance Analysis
Topic 11 A181 - Variance Analysis
VARIANCE ANALYSIS
AND
STANDARD COSTING
1
Topic Objectives
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Outline
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Standard Costing
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The usage of standard
costing
Product costing:
Provide readily available unit cost
information
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Setting of Standard Cost
• Engineering studies:
Determine the most efficient way to operate
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Types of Standards
Ideal standard
• Maximum efficiency
Normal standard
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Variance Analysis
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Calculation of variance
1. Direct material
2. Direct labor
3. Factory overhead
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10
Standard Cost
Illustration 1:
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Standard Standard Standard Cost
Price Usage RM
Direct material:
Peanut 2.80/kg 0.15kg 0.42
Butter 2.70/kg 0.10kg 0.27
Sugar 1.20/kg 0.25kg 0.30
0.99
Direct labor:
Machine operator 4.00/hour 0.02hour 0.08
Packaging 3.00/hour 0.01hour 0.03
0.11
Factory OH:
Variable costs 5.00/hour 0.01hour 0.05
Fixed costs 12.00/hour 0.01hour 0.12 0.17
Standard cost per unit 1.27
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If Tasty Nut produces 10,000 bottles of peanut
butter, the expected total cost would be:
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Calculation of variance
F = (Favorable) U = (Unfavorable)
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Direct Material Variance
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(Actual Price x Actual Quantity) - (Standard Price x Actual Quantity)
Simplified to be:
AQ ( AP – SP )
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2. Direct material usage (quantity)
variance
Simplified to be:
SP ( AQ – SQ )
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Actual Price x Actual Qty Std Price x Actual Qty Std Price x Std Qty
Usage Variance
Price Variance
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Illustration 2
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Direct material price variance: AQ ( AP – SP )
420 (F)
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Direct material usage variance: SP ( AQ – SQ )
20 (U)
Therefore ,
Total direct material variance = 420 (F) + 20 (U)
= 400 (F)
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Direct Labor Variance
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1. Direct Labor Rate Variance
Simplified to be:
AH ( AR – SR )
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2. Direct Labor Efficiency Variance
Simplified to be:
SR ( AH – SH ) *time variance
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Actual Hour x Actual Rate Act Hour x Std Rate Std Hour x Std Rate
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Illustration 3:
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AH ( AR – SR )
Direct Labor Rate Variance:
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Direct Labor Efficiency Variance: SR ( AH – SH )
10 (F)
Therefore,
total direct labor variance: = 40 (M) + 10 (M)
= 50 (M)
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Factory Overhead Variance
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1. Factory Overhead Flexible Budget
Variance
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2. Factory Overhead Volume Variance
Standard OH at
= Variable OH + Fixed OH
actual production
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Actual OH Costs Flexible OH Costs Std OH at actual prod.
Overhead Variance
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Illustration 4
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Flexible budget variance:
Variable OH:
Actual cost - (Std OH per unit x actual production )
= 560 - (0.05 x 10,000)
= 60 (U)
Fixed OH :
Actual cost - (Std OH per unit x std production )
= 1,440 - (0.12 x 12,000)
= 0
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Production volume variance:
Variable OH :
Variable OH costs - (Std OH per unit x actual production )
= 560 - (0.05 x 10,000)
= 60 U
Fixed OH :
Flexible OH costs - (Std OH per unit x actual production )
= 1,440 - (0.12 x 10,000)
= 240 (U)
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Total factory OH variance :
= 300 (U)
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Total variance:
37
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