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Distinguish between a standard and a budget. Identify the advantages of standard costs. Describe how standards are set. State the formulas for determining direct materials and direct labor variances. State the formulas for determining manufacturing overhead variances. Discuss the reporting of variances.
Standard costs
Direct Labor
The standard direct labor cost per unit is calculated as follows
materials
labour
Manufacturing Overheads
Analyzing variances
Variances must be analyzed to determine their significance
First, determine the cost elements that comprise the variance For each manufacturing cost element, a total dollar variance is computed. Then this variance is analyzed into a price variance and a quantity variance
Variance Relationships
3
SQ XSP 4000 X3= 12,000
2 - 3 Quantit iscount 12,600- 12,000 =Rs 600 uf 1-3 otal ariance 13,020-12,000 =Rs 1020
3
SH XSR 2000 X10= 20,000
2 - 3 Quantit ariance 21,000- 20,000 =Rs 1000 uf 1-3 otal ariance 20,580-20,000 =Rs 580UF
Actual Overhead
Actual Overhead
The volume variance may be the responsibility of the production department (inefficient use of direct labor hours) or may come from outside the production department (lack of sales orders)
Reporting Variances
Reporting variances
All variances should be reported to appropriate levels of management as soon as possible so that corrective action can be taken The form, content, and frequency of variance reports vary considerably among companies Variance reports facilitate the principle of management by exception In using variance reports, top management normally looks for significant variances
Lets Review
The setting of standards is: a. A managerial accounting decision. b. A management decision c. A worker decision. decision d. Preferably set at the ideal level of performance.
Lets Review
The setting of standards is: a. A managerial accounting decision. b. A management decision c. A worker decision. d. Preferably set at the ideal level of performance.