STANDARD COSTING PRACTICE

The Picture Frame Company produces large picture frames for sale to museums at $55.00 each. It uses a standard cost system that contains the following standard for one of its most popular frames.

Standard per unit of finished product: Lumber, 4 linear feet units Direct Labor 2 at $6 each unit 1/2 hour at $20/hour $12 /finished unit $10/finished unit

Manufacturing Overhead Variable: 1/2 machine hour at $10 per MH 1/2 MH at $15 /MH $5 /finished unit

Fixed

$7.5 /finished unit

Total standard manufacturing cost per finished unit

$34,50

Budgeted data for June 2008 Finished units Machine hours Variable overhead Fixed overhead 3.000 1.500 $15.000 $22.500

Purchasing data for June 2008 Units of lumber purchased Production data for June 2008 Finished frames produced Total actual machine hours Total wages paid for factory workers Actual variable overhead Actual fixed overhead 2.900 1.425 $30,810 for 1,580 hours $15.500 $23.500 6,000 for $35,400

COST VARIANCES

Material variances Price variance (PQ X AP) - (PQ X SP) = PQ(AP - SP) where: PQ =Quantity purchased AP = Actual price SP= Standard price Quantity variance (AQ X SP) - (SQ X SP) = SP(AQ - SQ) where: AQ= Actual quantity used SQ = Standard quantity allowed

Labor variances Rate variance (AH X AR) - (AH X SR) = AH (AR - SR) where: AH = Actual hours used AR = Actual rate per hour SR = Standard rate per hour Efficiency variance (AH X SR) - (SH X SR) = SR(AH - SH) where: SH = Standard hours allowed AH = Actual hours used SR = Standard rate per hour

Variable Manufacturing Overhead Variances Spending Variance Actual variable overhead - (AH x SVR) where: AH = Actual process hours AVR = Actual variable overhead SVR = Standard variable overhead rate Quantity (efficiency) variance SVR (AH - SH) Fixed Manufacturing Overhead Variances Spending Variance Actual Fixed Overhead - Budgeted Fixed Overhead Production Volume Variance Budgeted fixed overhead - Applied fixed overhead