Standard Costing and Variance Analysis

Static budget - budgested costs at a particular level of activity. The budgeted

cost does not change regardless of the change in the production.
Flexible budget - budgeted costs at a the achieved level of activity. Adjusted
budget is the flexible budget.

We only compute variance production costs (materials, labor, overhead)

Price,rate or spending variance.

Quantity, usage or efficiency variance.

Materials variances:
Price = (AP-SP) * AQ
Quantity = (AQ-SQ) * SP

Labor variances:
Rate = (AR-SR) * AH
Efficiency = (AH-SH) * AR

Mix Variance =
Yield Variance =

Actual FOH = Overhead entered into production, known at the end of the production.

Budgeted FOH = Overhead set at the beginning or before the production begins.
Applied FOH = Overhead applied during production process.

FOH Spending (Budget Variance) = Actual - Budgeted

FOH Volume (Uncontrollable, capacity or denominator) = Budgeted - Applied

Straight Problems

Problem No. 1
Materials 80K
DL 64K
VOH 48K
FOH 120
Total 312K

Problem No. 2
1. Acq costs/container (115*.95) 109.25
Shipping costs per cont (130/100) 1.3
Std purchase price per container 110.55
Divide by: # of gallons/container 15
Std price per gallon 7.37
Divide by: No. of quartz in a gallon 4
Std purchase price per quart 1.84

2. No. of quarts in final bottle 14.25

Div by: 95%
Mult by: 31
Div by 30
Std quarts to produce 1 saleable bottle 15.5

14.25/.95*31/30 = 15.5 quarts

Problem No. 3
1. MPV = 15K U
2. MUV = 64K U
3. LRV = 33K F
4. LEV = 80K U
5. OHV = Actual OH - Applied OH
1,001K - (42K*21)
OHV = 119K U

SHORTCUTS
Variable OH variances:
1. Variable spending variance = (AR-SR) * AQ
2. Variable efficiency variance = (AQ-SP) * SR

Fixed OH variances:
1. Fixed Spending Variance = Fixed AFOH - Budgeted FOH
2. Fixed Volume Variance = (Normal Capacity - Actual Production) * Fixed
OH rate per unit

2-Way 3-way
4-way
Budget Variance: (mixed) (Controllable) BV is split into Spending and
Efficiency SV is split into Variable and Fixed
AFOH ** Spending Variance: (mixed)
Variable Spending Variance: (variable)
Less: BASH AFOH **
Variable AFOH **
Budgeted fixed FOH ** Less: BAAH
Less: AH*Std Var OH rate **
SH*Std Var OH rate ** ** Budgeted fixed FOH
** VSV **
Budget Variance ** AH*Std Var OH rate
** **
Spending Variance **
Fixed Spending Variance (fixed)

Fixed AFOH **

Less: Budgeted FOH **

Fixed Spending Variance **

Efficiency Variance (variable)

Efficiency Variance: (variable)
BAAH **
BAAH **
Less: BASH **
Less: BASH **
Efficiency Variance
** Efficiency Variance **

Volume Variance (fixed) (Uncotrollable) Volume Variance

(fixed) Volume Variance (fixed)
BASH ** BASH **
BASH **
Less: Std. Hr * Std FOH rate ** Less: Std. Hr * Std. FOH rate
** Less: Std. Hr * Std. FOH rate **
 Volume Variance ** Volume Variance
** Volume Variance **

6. 4-way
1. Variable Spending Variance = 17K U
2. Fixed Spending Variance = 10k F
3. Efficiency Variance = 40K U
4. Volume Variance = 72K U

7. 3-way
1. Spending Variance = 7K U
2. Efficiency Variance = 40K U
3. Volume Variance = 72K U

8. 2-way
1. Budget Variance = 47K U
2. Volume Variance = 72K U

Ideal capacity - no allowance for machine breakdown and employee rest.

Attainable capacity- will allowance

Problem No. 4
1. 252K
2. 220K
3. 28K U
4. 4K U

Flexible Budget Variance = Actual VOH - Applied VOH

Flexible Budget = Applied VOH (SH * SVR)

Problem No. 5
1. 120K
2. 144K
3. 2K U
4. 24K F

Fixed Cost Static Budget = Fixed Cost Flexible Budget

Problem No. 6
1. 28K
2. 25.5K

Alternatively:
Volume Variance = (DLA-SH) = Fixed OH rate
Denominator Level Activity = Budgeted Hours

Problem No. 7
1. MV=38,850 F
2. YV=76,950 U

Problem No. 8
1. SPV = (ASP-SSP) AQs
= 58K u

2. SVV = (AQs-SQs) Standard Contribution Margin

= 160K U
Actual CM = 29K (298-140) = 4,582K
Budgeted CM = 30K (300-140) = 4,800K
CM variance = 218K U

Note: Standard SP is not used as a multiplier to get Sale Volume Variance.

Problem No. 9
1. 120.8K U
2. 187.2K F

MCQ:
1. D
2. A
3. A
4. A, should be D
5. B
6. C
7. B
8. D
9. B
10. B
11. B
12. B
13. C
14. B
15. A, should be D
16. D
17. B
18. A
19. B
20. A
21. A
22. A, should be C
23. A
24. C
25. B
26. B
27. D
28. C
29. D
30. A
31. B
32. E
33. B
34. D, should be A
35. A
36. B
37. A
38. D
39. A
40. C