STANDARD

COSTING
AND
VARIANCE
ANALYSIS
Give the formula for the following variances:
1. Direct Materials Price Variance
2. Direct Labor Efficiency Variance
3. Total Direct Materials Variance
4. Total Direct Labor Variance
5. Controllable Variance
1. (Actual Price – Standard Price) x Actual Quantity
2. ( Actual hours – Standard hours ) x Standard Rate
3. (Actual Price x Actual Quantity) – (Standard Price x Standard Quantity) or Direct Materials Price
Variance – Direct Materials Quantity Variance
4. (Actual Rate x Actual Hours) – (Standard Rate x Standard Hours) or Direct Labor Rate Variance –
Direct Labor Efficiency Variance
5. Actual Overhead – Budgeted Overhead at Standard Hours Allowed or Actual Overhead – (Budgeted
Fixed Overhead + (Standard Hours x Variable Overhead Rate))

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STANDARD COSTING
: preparation and use of standard cost, their comparison with actual costs,
and the analysis of variances to their causes and points of incidence

STANDARD COST
: predetermined cost which is calculated from management’s standard of
efficient operation and the relevant necessary expenditure. It may be used
as a basis for price fixing and for cost control through variance analysis
: expresses what costs should be under attainable good performance
STANDARD COSTS VS. BUDGETED COSTS
: they are both estimated costs.
: STANDARD COSTS are estimates based on ACTUAL conditions or capacity; sometimes
referred as FLEXIBLE BUDGET
: BUDGETED COSTS are estimates based on PROJECTED or BUDGETED capacity;
sometimes referred as MASTER BUDGET

ADVANTAGES OF STANDARD COSTING

: used as basis for managerial planning
: as an instrument of coordination
: as a reference in cost control
: used in formulating price and production policies
: serve as basis of giving incentives to employees

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TYPES OF STANDARDS
1. Basic (Fixed) Cost Standards – standards that are unchanged year after
year.
2. Perfection (Ideal or Theoretical) Cost Standards – are absolute
minimum costs attainable under perfect operating conditions
3. Current Attainable Cost Standards – standards that can be stained
under efficient operating conditions. It is useful for employee motivation,
product costing and budgeting.

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 Materials Price Standard – the price that should be
paid for a unit of raw materials purchased.
Direct Materials Standard
Materials Quantity Standard – the amount of
material that should be consumed in manufacturing
unit of product.

Labor Rate Standard – the predetermined rate per

hour based on current wage rate, which generally
includes payroll taxes and fringe benefits, such as
paid holidays.
Direct Labor Standard
Labor Efficiency Standard – the predetermined time
required to finished one unit of product.
Manufacturing Overhead Predetermined overhead rate is used
Standard

Budgeted overhead cost

Expected Standard Activity
PRODUCTION COSTS VARIANCES

: variance – the difference between the actual and standards

: Cost Variance = ACTUAL COSTS – STANDARD COSTS

Cost
If Variance Treatment
Actual costs > Standard costs Unfavorable Add to the Cost of Goods Sold
Actual costs < Standard costs Favorable Deducted to the Cost of Goods Sold

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ABBREVIATIONS: VARIANCE FORMULA:
For Direct Materials and Direct Labor:

1. AP = Actual Price
2. SP = Standard Price
3. AQ = Actual Quantity
Direct Materials Variances:
4. SQ = Standard Quantity
1. DMPV = (AP-SP) x AQ
5. AR = Actual Rate
2. DMQV = (AQ-SQ) x SP
6. SR = Standard Rate
3. TDMV = (AP x AQ) – (SP x SQ) or DMPV -
7. AH = Actual Hours
DMQV
8. SH = Standard Hours
9. DMPV = Direct Materials Price Variance
10.DMQV = Direct Materials Quantity Direct Labor Variances:
Variance 1. DLRV = (AR-SR) x AH
11. TDMV = Total Direct Materials Variance 2. DLEV = (AH-SH) x SR
12.DLRV = Direct Labor Rate Variance 3. TDLV = (AR x AH) – (SR x SH) or DLRV - DLEV
13.DLEV = Direct Labor Efficiency
Variance
14.TDLV = Total Direct Labor Variance 9
 3-way Analysis:
2-way Analysis:
Direct Materials:
Direct Materials:
DMPV = (AP-SP) x AQ = change in P x AQ
DMPV = (AP-SP) x AQ = change in P x AQ purchased
purchased DMQV = (AQ-SQ) x SP = change in Q x SP
DMQV = (AQ-SQ) x SP = change in Q x SP Joint Materials Variance = change in P x change in Q

Direct Labor: Direct Labor:

DLRV = (AR-SR) x AH = change in R x AH DLRV = (AR-SR) x AH = change in R x AH

DLEV = (AH-SH) x SR = change in H x SR DLEV = (AH-SH) x SR = change in H x SR
Joint Labor Variance = change in R and change in H

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The Enha Household Company has established standard costs for the cabinet department, in which one size of MX cabinet is
made. The standard costs of producing one of these MX cabinets are shown below:

Standard Cost Card MX Cabinet:

Direct Material: Lumber 50 board feet at P4 P 200
Direct Labor: 8 hours at P10 P 80
Overhead Costs: Variable – 8 hours at P5 P 40
Fixed – 8 hours at P3 P 24
Total Standard Unit Cost P 344

During June 2023, 500 of these cabinets were produced. The cost of operations during the month is shown below. There are no
work in process at the beginning and end of the month.

Direct Material purchased: 30,000 board feet at P 4.10 P 123,000

Direct Material Used: 24,000 board feet
Direct Labor: 4,200 hours at P9.50 P 39,900
Overhead Costs: Variable Costs P 22,000
Fixed Costs P 11,000
The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P36,000 of which P
22,500 is variable and P 13,500 is fixed overhead.
:Compute for the ff variances for Prime Costs
a. DMPV b. DMEV c. DLRV d. DLEV 11
DMPV = (AP-SP) x AQ
(4.10-4.00) x 30,000 = P 3,000 U

DMQV = (AQ-SQ) x SP
Standard Quantity = (200/4) = 50 units
= 50x500
= 25,000 *** Note:
(24,000-25,000) x 4.00 = P 4,000 F Standard Quantity and Standard
Hours are always based on actual
DLRV = (AR-SR) x AH units produced or manufactured x
(9.50-10.00) x 4,200 = P 2,100 F the standard materials or hours per
units
DLEV = (AH-SH) x SR
Standard Hours = 8 hours
= 8 x 500
= 4,000
(4,200-4,000) x 10 = P 2,000 U

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Woodside Company manufactures tables with vinyl tops.  The standard material cost for the vinyl used per
Style-R table is P7.20 based on 8 square feet of vinyl at a cost of P0.90 per square foot.  A production run of
1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of P0.85 per square foot, a
total cost of P7,055.  The direct materials quantity variance resulting from the above production run was:

DMQV = (AQ-SQ) x SP
( 8,300 - ( 1000 x 8) ) x 0.90 = P 270 U

Ben's Climbing Gear, Inc. has direct material costs as follows:

Actual units of direct materials used 20,000

Standard price per unit of direct materials P2.50
Direct Materials quantity variance--favorable P5,000

What was Ben's standard quantity of direct material allowed?

DMQV = (AQ-SQ) x SP
-5,000 F = ( 20,000 – SQ ) x 2.50
-(5,000/2.5) = 20,000 – SQ
-2000 = 20,000 – SQ
22,000 = SQ 13
Lola Inc., Uses a standard costing system in manufacturing a certain shirt. Each unit of finished product
contains 2 meters of direct materials. However, 20% direct material spoilage calculated on input quantities
occurs during the manufacturing process. The cost of direct materials is P30 per meter. The standard direct
material cost per unit of finished product is:

2 / .80 = 2.5 x P30 = P75 Standard DM cost per unit

Information about Mama Company’s direct material costs for the month of June 2023 was as follows:
Actual quantity purchased 18,000
Actual unit purchase price P 3.60
Materials price variance – unfavorable P 3,600
Standard quantity allowed for actual production 16,000
Actual quantity used 15,000
For June 2023, what is the direct materials quantity variance?

(P3.60 - X) 18,000 = P3,600 unfavorable DM price variance

X = P3.40 standard price
(15,000 - 16,000) x P3.40 = P3,400 DM quantity variance (f)

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Burger King uses a standard costing system in the manufacture of its single product. The 35,000 units of
raw materials in inventory were purchased for P105,000, and two units of raw materials are required to
produce one unit of final product. In November, the company produced 12,000 units of product. The
standard allowed for material was P60,000 and there was an unfavorable quantity variance of P2,500.

Burger King’s standard price for one unit of material is:

Total standard quantity : 2 x 12,000 = 24,000 units
Standard Price = Standard costs / Standard quantity
SP = P60,000/24,000 = P 2.50 per unit
The unit of material used to produce November output totaled:

DMQV = (AQ-SQ) x SP
2,500 UF = (AQ – 24,000) x P2.50
2,500 = 2.50AQ – 60,000
AQ = 62,500 / 2.50 = 25,000 units
The materials price variance for the units used in November is:
DMPV = (AP-SP) x AQ
DMPV = (P3.00-P2.50) x 25,000 units
DMPV = P12,500 UF
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 Each unit of Product O requires two direct labor hours. Employee benefits costs are treated as direct labor
costs. Data on direct labore are as follows:
Number of direct employees 25
Weekly productive hours per employee 30
Estimated weekly wages per employee P 240
Employee benefits 25%
The standard direct labor cost per unit of Product O is:

Estimated weekly wages per employee P240

Employee benefits (P240 x 25%) 60
Total 300
Divided by no. of hours per employee ÷ 30
Rate per hour P 10
Multiply by no. of hours per unit X2
Standard direct labor cost per unit P 20

TEACH A COURSE 16
For the month of April, Tom Company’s records disclosed the following data relating to direct labor:
Actual Cost P 10,000
Direct Labor Rate Variance 1,000 F
Direct Labor Efficiency Variance 1,500 UF
Standard Cost P 9,500
For the month of April, actual direct labor hours amount to 2,000. In April, Tom’s standard direct labor rate
per hour was:
DLRV = ( AR-SR ) x AH
(1,000) F = (5.00-SR) x 2,000 Hrs.
(1,000) = 10,000 – 2,000SR
2,000 SR = 11,000
SR = 11,000/2,000 = P 5.50

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 Tube Company uses a standard cost system. The following information pertains to direct labor for product B
for the month of October.
Standard hours allowed for actual production 2,000
Actual rate paid per hour P 8.40
Standard rate per hour P 8.00
Direct Labor Efficiency Variance P 1,600 U
What were the actual hours worked?
DLEV = ( AH-SH ) x SR
1600 UF = (8AH – 2000) x 8.00
1600 = 8AH – 16,000
AH = 17600/8 = 2,200 hrs

TEACH A COURSE 18
Earl Company's direct labor costs for the month of January follow:

Actual direct labor hours 18,000

Standard direct labor hours 19,000
Direct labor rate variance--unfavorable P 1,800
Total payroll P 117,000

What was Earl's direct labor efficiency variance?

DLRV = ( AR-SR ) x AH
1,800 U = ((117,000/18000) - SR) x 18,000
1,800 U / 18,000 = .10
.10 = 6.50 - SR
6.40 = SR

DLEV = ( AH-SH ) x SR
DLEV = (18,000 - 19,000) x P6.40
DLEV = 1,000 x 6.40
DLEV = P 6,400 F
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 Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost.
Jackson has established the following standard for prime costs of one unit of product.

Standard Quantity Standard Price/Rate Standard Cost

Direct Materials 5 pounds P 3.60 P 18.00
Direct Labor 1.25 hours P 12 P 15.00

During May, Jackson purchased 125,000 pounds pf direct materials at a total cost of P 475,000. The total factory
wages for May were P 364,000, 90% of which are for direct labor. Jackson manufactured 22,000 units of product
during May using 108,000 pounds of direct materials and 28,000 direct labor hours.

The Direct labor rate variance is:

The Direct labor efficiency variance is:

DLPV = (AR-SR) x AH
DLEV = (AH-SH) x SR
AR = (364,000 x 90% ) = 327,600/28,000
SH = (1.25 x 22,000) = 27,500
AR = 11.70
= ( 28,000 – 27,500) x 12
= (11.70-12) x 28,000
= P 6,000 U
= P 8,400 F
JR Company has the following information available for October when 3,500 units were produced.
Standards:
Material 3.5 pounds per unit @ P4.50 per pound
Labor 5.0 hours per unit @ P10.25 per hour
Actual:
Material purchased 12,300 pounds @ P4.25
Material used 11,750 pounds
17,300 direct labor hours @ P10.20 per hour
What is the labor rate variance?
DLRV = (AR - SR) * AQ
DLRV = (P10.20 - P10.25) * 17,300 hrs.
DLRV = P 865 F
What is the labor efficiency variance?
DLEV = (AQ - SQ)* SP
DLEV = (17,300 hrs -(3,500 units * 5.0 hr/unit)) * P10.25/hr
DLEV = P2,050 F
Assume that the company computes the material price variance on the basis of material issued to production. What is
the total material variance?
Total Variance = (11,750 * P4.25) - (3,500 * 3.5 * P4.50)
Total Variance = P49,937.00 - P55,125.00
Total Variance = P5188 F
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ABBREVIATIONS:
For Overhead:

1. AH = Actual Hours
2. SH = Standard Hours
3. NH = Normal Hours 15. VEV = Variable Efficiency Variance
4. AO = Actual Overhead 16. FEV = Fixed Efficiency Variance
5. OA = Overhead Applied 17. ICV = Idle Capacity Variance
6. AFO = Actual Fixed Overhead 18. FSPV = Fixed Spending Variance
7. AVO = Actual Variable Overhead 19. VSPV = Variable Spending Variance
8. SOR = Standard Overhead Rate 20. BOAH = Budgeted Overhead at Actual
9. VOR = Variable Overhead Rate Hours Allowed
10.FOR = Fixed Overhead Rate 21. BOSH = Budgeted Overhead at Standard
11. BFO = Budgeted Fixed Overhead Hours Allowed.
12.COV = Controllable Variance
13.VOV = Volume Variance
14.SPV = Spending Variance

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VARIANCE FORMULA:

TWO WAY ANALYSIS

1. COV = AO – BOSH or AO – (BFO+(SHxVOR))
2. VOV = BOSH – OA or BOSH – (SHxSOR)

THREE WAY ANALYSIS

1. SPV = AO – BOAH or AO – (BFO+(AHxVOR))
2. VEV = BOAH – BOSH or (AH-SH) x VOR
3. VOV = BOSH – OA or BFO – (SH x FOR) or (NH x FOR) – (SH x FOR)

FOUR WAY ANALYSIS FOUR WAY ANALYSIS

1. FSPV = AFO - BFO 1. SPV = AO - BOAH
2. VSPV = AVO – (AH x VOR) 2. VEV = BOAH - BOSH
3. VEV = ( AH – SH ) x VOR 3. FEV = ( AH – SH ) x FOR
4. VOV = ( NH – SH ) x FOR 4. ICV = ( NH – AH ) x FOR
The Enha Household Company has established standard costs for the cabinet department, in which one size of MX cabinet is
made. The standard costs of producing one of these MX cabinets are shown below:

Standard Cost Card MX Cabinet:

Direct Material: Lumber 50 board feet at P4 P 200
Direct Labor: 8 hours at P10 P 80
Overhead Costs: Variable – 8 hours at P5 P 40
Fixed – 8 hours at P3 P 24
Total Standard Unit Cost P 344

During June 2023, 500 of these cabinets were produced. The cost of operations during the month is shown below. There are no
work in process at the beginning and end of the month.

Direct Material purchased: 30,000 board feet at P 4.10 P 123,000

Direct Material Used: 24,000 board feet
Direct Labor: 4,200 hours at P9.50 P 39,900
Overhead Costs: Variable Costs P 22,000
Fixed Costs P 11,000
The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P36,000 of which P
22,500 is variable and P 13,500 is fixed overhead.
:Compute for the Overhead Variance using: a. Two way analysis b. Three way analysis c. Four way
analysis 24
Two Way Analysis:
1. COV = AO – BOSH or AO – (BFO+(SHxVOR))
= AO = (22,000+11,000) = 33,000
= BOSH = (13,500 + ((500x8)x5)) = 33,500
= 33,000 – 33,500
= 500 F
2. VOV = BOSH – OA or BOSH – (SHxSOR)
= BOSH = 33,500
= OA = (500x8) x 8 = 32,000
= 33,500 – 32,000
= 1,500 U
Three Way Analysis:
1. SPV = AO – BOAH or AO – (BFO+(AHxVOR))
= AO = 33,000
= BOAH = (13,500 + ((4200x5)) = 34,500
= 33,000 – 34,500
= 1,500 F
2. VEV = BOAH – BOSH or (AH-SH) x VOR
= BOAH = 34,500
= BOSH = 33,500
= 34,500 – 33,500
= 1,000 U
3. VOV = BOSH – OA or BFO – (SH x FOR) or (NH x FOR) – (SH x FOR)
= BOSH = 33,500
= OA = 32,000
= 33,500 – 32,000
= 1,500 U
Four Way Analysis:
1. FSPV = AFO - BFO Four Way Analysis:
= 11,000 – 13,500 1. SPV = AO – BOAH
= 2,500 F = 33,000 – 34,500
2. VSPV = AVO – (AH x VOR) = 1,500 F
= AVO = 22,000 2. VEV = BOAH – BOSH
= (AH x VOR) = (4,200 x 5) = 21,000 = 34,500 – 33,500
= 22,000 – 21,000 = 1,500 U
= 1,000 U 3. FEV = ( AH – SH ) x FOR
3. VEV = ( AH – SH ) x VOR = (4,200 – 4,000) x 3
= (4,200 – 4,000) x 5 = 600 U
= 1,000 U 4. ICV = ( NH – AH ) x FOR
4. VOV = ( NH – SH ) x FOR = ( 4,500-4,200) x 3
= ( 4,500 – 4,000) x 3 = 900 U
= 1,500 U
THANK YOU!