use only with permission of susan crosson chapter 9 standard costing and variance analysis fall 2007...

Use only with permission of Susan Crosson

Chapter 9 Chapter 9 Standard Costing and Standard Costing and

Variance AnalysisVariance Analysis

Fall 2007Crosson


Learning Objectives:Responsibility Accounting & Cost CentersCost Performance Evaluation using Master and Flexible BudgetsStandard Costing Basics for Cost CentersPerformance Evaluation using Standard Costing: Spending and Efficiency VariancesCompute and Analyze DM,DL,VOH, and FOH variances


Responsibility Accounting:Responsibility Accounting:

CCost Center:ost Center:

An information system that classifies An information system that classifies data according to a manager’s data according to a manager’s responsibilities for organizational responsibilities for organizational resourcesresources

Manager accountable for costs that have well-defined relationships between the center’s resources and products or services.


Cost Performance Evaluation using Cost Performance Evaluation using Flexible and Master BudgetsFlexible and Master Budgets

ACTUALPRODUCTION

FLEXIBLE BUDGET

MASTER BUDGET

Actual Output

x Actual Quantity

x Actual Cost

Actual Output

x Standard Quantity

x Standard Cost

Estimated Outputx Standard Quantityx Standard Cost


What Do You Know?What Do You Know?Flexible Budget PreparationFlexible Budget Preparation

Look and listen to SE5.

P2 parts 3 & 4


P2 Cost Performance EvaluationP2 Cost Performance EvaluationACTUALPRODUCTIO

N(46,560)

APRIL FLEXIBLE BUDGET(46,560)

MASTER BUDGET (50,000)

DM $4,975DM $4,975

DL $5,850DL $5,850

IDL $1,290IDL $1,290

Supplies $ 960Supplies $ 960

VH&P $1,325VH&P $1,325

VO $2,340VO $2,340

FH&P $3,500FH&P $3,500

Depreciation $4,200Depreciation $4,200

I&T $1,200I&T $1,200

FO $1,600FO $1,600

Total $27,240Total $27,240

DM DM $.10$.10 x x 46,56046,560= $4,656.00= $4,656.00

DL DL $.12$.12 x x 46,56046,560= $5587.20= $5587.20

IDL IDL $.03$.03 x x 46,56046,560= $1396.80= $1396.80

Sup. Sup. $.02$.02 x x 46,56046,560= $931.20 = $931.20

VH&P VH&P $.03$.03 x x 46,56046,560= $1,396.80= $1,396.80

VO VO $.05$.05 x x 46,56046,560= $2,328.00 = $2,328.00

FH&P FH&P $3,500$3,500

Dep. Dep. $4,200$4,200

I&T I&T $1,200$1,200

FO FO $1,600$1,600

Total $26,796Total $26,796

DM $5,000DM $5,000

DL $ 6,000DL $ 6,000

IDL $1,500IDL $1,500

Sup. $1.000Sup. $1.000

VH&P $1,500VH&P $1,500

VO $2,500VO $2,500

FH&P $3,500FH&P $3,500

Dep. $4,200Dep. $4,200

I&T $1,200I&T $1,200

FO $1,600FO $1,600

Total $28,000Total $28,000


Performance Evaluation using Performance Evaluation using Flexible and Master BudgetsFlexible and Master Budgets

ACTUALPRODUCTION

FLEXIBLE BUDGET

MASTER BUDGET

Actual Output

x Actual Quantity

x Actual Cost

Actual Output

x Standard Quantity

x Standard Cost

Estimated Outputx Standard Quantityx Standard Cost

Standard Costing


Standard Costing Standard Costing Basics: Basics:

Master Budget Prepared for yearAs part of the Master Budget, Standard Quantities and Rates set for Materials, Labor, Variable Overhead and Fixed Overhead (i.e., predetermined rates—remember applied OH?During year Journal Entries use these StandardsManagers monitor Cost Centers by computing and analyzing Price and Quantity Variances for Materials, Labor and Variable Overhead and Budget and Volume Variances for Fixed Overhead


Material, Labor, and Variable Material, Labor, and Variable Overhead VariancesOverhead Variances

ACTUALPRODUCTION

FLEXIBLE BUDGET

Actual Output

x Actual Quantity

x Actual Cost

Actual Quantity

x Standard Cost

Actual Output

x Standard Quantity

x Standard Cost

Spending or Spending or Price or Rate Price or Rate

VarianceVariance

Efficiency Efficiency or or

Quantity Quantity VarianceVariance


Use the following information to answer questions: Use the following information to answer questions: The California Steel Works uses a standard costing The California Steel Works uses a standard costing system.system.

BUDGET:BUDGET: The variable standard cost of producing one case of steel brackets is:

Direct material (5 pounds @ $1 per pound) $ 5.00

Direct labor (2 hours @ $2 per hour) $ 4.00

Variable overhead (2 hours @ $3 per hour) $ 6.00

Thus, total variable cost per case $15.00.

The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH).

Based on a master budget of 20,000 cases.

ACTUAL:ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were:

Direct material (5 pounds @ $.90 per pound $ 4.50

Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05

Variable overhead ($148,750/25,000 cases) $ 5.95

The actual fixed overhead was $105,250.


Material, Labor, and Variable Overhead VariancesMaterial, Labor, and Variable Overhead Variances

ACTUAL PRODUCTION

25,000 cases (AAA)

ACTUAL Quantity AT STANDARD Cost (AAS)

FLEXIBLE BUDGET 25,000 cases (ASS)

DM: 25,000 x (5 pounds @ $.90 per

pound)= $112,500

DM: 25,000 x 5 x$1=

$125,000

DM: 25,000 x (5 pounds @ $1 per pound)=

$125,000

DL: 25,000 x( 2 1/4 hours @ $1.80 per

hour)= $101,250

DL: 25,000 x 2 1/4 x$2=

$112,500

DL: 25,000 x (2 hours @ $2 per hour)=

$100,000

VOH:

$148,750

VOH: 25,000 x 2 ¼ x$3=

$168,750

VOH: 25,000 x (2 hours @ $3 per hour)=

$150,000Spending Spending

or or Price or Price or

Rate Rate VarianceVariance

Efficiency or Efficiency or Quantity Quantity VarianceVariance


Material, Labor, and Variable Material, Labor, and Variable Overhead VariancesOverhead Variances

ACTUALPRODUCTION

FLEXIBLE BUDGET

Actual Output

x Actual Quantity

x Actual Cost

Actual Quantity

x Standard Cost

Actual Output

x Standard Quantity

x Standard Cost

Favorable or Favorable or Unfavorable Unfavorable

Spending or Price or Spending or Price or Rate VarianceRate Variance

Favorable or Favorable or Unfavorable Unfavorable Efficiency or Efficiency or

Quantity VarianceQuantity Variance

Crosswalk to Variable Overhead Crosswalk to Variable Overhead AccountAccount

Variable OverheadVariable OverheadActual VOH:Actual Output

x Actual Quantity

x Actual Cost

Applied VOH:Actual Output

x Standard Quantity

x Standard Cost ((SAME AS FLEXIBLE BUDGET!!!)SAME AS FLEXIBLE BUDGET!!!)

Underappliedaka Net Spending & Efficiency Variances

Overappliedaka Net Spending & Efficiency Variances

Dr. COGS xxCr. OH xx

Dr. OH xxCr. COGS xx


Fixed Overhead VariancesFixed Overhead Variances

ACTUALPRODUCTIO

N

MASTER or

FLEXIBLE BUDGET

APPLIED OVERHEAD

ActualActual

Fixed Fixed

OverheadOverhead

Budgeted Budgeted

Fixed Fixed

OverheadOverhead

Actual Output x

Fixed Overhead Rate*

* (Standard Quantity

x Standard Cost)Budget or Budget or Spending or Spending or ControllableControllable

VarianceVariance

Volume or Volume or UncontrollabUncontrollable Variancele Variance

Crosswalk to Fixed Overhead Crosswalk to Fixed Overhead AccountAccount

Fixed OverheadFixed OverheadActual FOH:

ActualActual

Fixed Fixed

OverheadOverhead

Applied FOH:Actual Output x Fixed Overhead

Rate*

* (Standard Quantity

x Standard Cost)

Underappliedaka Net Budget and Volume Variances

Overappliedaka Net Budget and Volume Variances

Dr. COGS xxCr. OH xx

Dr. OH xxCr. COGS xx


Use the following information to answer questions: Use the following information to answer questions: The California Steel Works uses a standard costing The California Steel Works uses a standard costing system.system.

BUDGET:BUDGET: The variable standard cost of producing one case of steel brackets is:

Direct material (5 pounds @ $1 per pound) $ 5.00

Direct labor (2 hours @ $2 per hour) $ 4.00

Variable overhead (2 hours @ $3 per hour) $ 6.00

Thus, total variable cost per case $15.00

The predetermined overhead rate is $7 per direct labor hour ($3 VOH and $2 FOH).

Based on a master budget of 20,000 cases.

ACTUAL:ACTUAL: During the past accounting period the company produced 25,000 cases and the actual cost per case were:

Direct material (5 pounds @ $.90 per pound $ 4.50

Direct labor ( 2 1/4 hours @ $1.80 per hour) $4.05

Variable overhead ($148,750/25,000 cases) $ 5.95

The actual fixed overhead was $105,250.


Fixed Overhead VariancesFixed Overhead VariancesACTUAL

PRODUCTION

BUDGET (MASTER or FLEXIBLE)

APPLIED OVERHEAD

$105,250 $80,000*$80,000*

*(20,000 cases x *(20,000 cases x $2/DLH x 2DLH)$2/DLH x 2DLH)

$100,000* $100,000*

** 25,000 cases x $4/case 25,000 cases x $4/case

or or 25,000 cases x 25,000 cases x

$2/DLH x 2DLH$2/DLH x 2DLHFavorable or UnfavorableFavorable or Unfavorable Budget or Spending or Budget or Spending or Controllable VarianceControllable Variance

Favorable or Favorable or UnfavorableUnfavorable Volume Volume

or Uncontrollable or Uncontrollable VarianceVariance


What Do You Know?What Do You Know?Compute and Analyze Compute and Analyze

DM,DL,VOH, and FOH variancesDM,DL,VOH, and FOH variances

P4P4Look and listen SE6 , SE7, Look and listen SE6 , SE7, SE8.SE8.


What Do You Know?What Do You Know?Variance AnalysisVariance Analysis

P3P7


Homework Homework

P4P4

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