MATERIAL VARIANCE

Actual Material Cost Actual Qty. X Actual Price xxx

Standard Material Cost Unit Completed x Standard Price/Unit xxx
Or EP x SP/unit
Net Favorable or Unfavorable Variance xxx

TWO VARIANCE METHOD

Material Quantity (Usage) Variance AQ - SQ x SP xxx
*SQ = UC x SM/unit or EP x SM/unit
Material Price Variance AP - SP x AQ xxx
Net Variance xxx

THREE VARIANCE METHOD

Material Quantity Variance AP - SQ x SP xxx
Material Price Variance AP - SP x SQ xxx
Quantity Price Variance QD x PD xxx
Net Variance xxx

AMC = Actual Material Cost

SMC = Standard Material Cost
AQ = Actual Quantity
SQ = Standard Quantity
QD = Quantity Difference
AP = Actual Price
SP = Standard Price
PD = Price Difference
UC = Units Completed
EP = Equivalent Production

LABOR VARIANCE
ALC (Payroll) AT x AT/hour xxx
SLC UC x SLC/unit or EP x SLC/Unit xxx
Or ST x SLC/unit
Net Favorable or Unfavorable Variance xxx

TWO VARIANCE ANALYSIS

Time (Efficiency) Variance AT - ST x SR xxx
Rate Variance AR - SR x AT xxx
Net Favorable or Unfavorable Variance xxx

THREE VARIANCE ANALYSIS

Time (Efficiency) Variance AT - ST x SR xxx
Rate Variance AR - SR x ST xxx
Time Rate Variance TD x RD xxx
Net Favorable or Unfavorable Variance xxx

ALC = Actual Labor Cost

AT = Actual Time
SLC = Standard Labor Cost
ST = Standard Time
UC = Units Completed
AR = Actual Rate
SR = Standard Rate
TD = Time Difference
RD = Rate Difference
FACTORY OVERHEAD (FIXED BUDGET)
Total Factory Overhead Variance:
AFOH xxx
SFOH*
*SFOH = UC x SOHR/U or EP x SOHR/U or ST x SOHR/HR xxx
Net Favorable or Unfavorable Variance xxx

THREE VARIANCE METHOD

Budget Variance AFOH - BFOH xxx
Capacity Variance BT - AT x SOHR/HR xxx
Efficiency Variance AT - ST x SOHR/HR xxx
Net Variance xxx

AFOH = Actual Factory Overhead

SFOH = Standard Factory Overhead
BFOH = Budgeted Factory Overhead
BAAH = Budgeted Allowance on Actual Hours
BT = Budgeted Time
ST = Standard Time
VR = Variable Rate
AVO = Actual Variable Overhead
AFO = Actual Fixed Overhead
AT = Actual Time
FR = Fixed Rate
TD = Time Difference
SFO = Standard Fixed Overhead
BASH = Budget Allowance on Standard Hours

FACTORY OVERHEAD (FLEXIBLE BUDGET)

TWO VARIANCE METHOD

Controllable Variance
AFOH xxx
BASH:
Fixed (Budgeted) xxx
Variable (ST x VR/HR) xxx xxx
Net Favorable or Unfavorable xxx
Or
AVO - SVO xxx(F) U

THREE VARIANCE METHOD

Budget Variance AFOH - BFOH xxx
Capacity Variance BT - AT x SOHR/HR xxx
Efficiency Variance AT - ST x SOHR/HR xxx
Net Variance xxx

VOLUME VARIANCE
BASH: xxx
SFOH xxx
Net Favorable or Unfavorable xxx
Or
AFO - SFO xxx(F) U
SFO = ST x FR/HR or UC x FR/U
Or EP x FR/U
THREE VARIANCE METHOD
Budget Variance (Spending Variance)
AFOH xxx
BAAH:
Fixed (Budgeted) xxx
Variable (AT x VR/HR) xxx xxx
Net Favorable or Unfavorable xxx

Capacity Variance
BT - AT x FR/HR xxx(F) U

Efficiency Variance
AT - ST x SOHR/HR xxx(F) U

FOUR VARIANCE METHOD

Budget Variance (Spending Variance)
AFOH xxx
BAAH:
Fixed (Budgeted) xxx
Variable (AT x VR/HR) xxx xxx
Net Favorable or Unfavorable xxx

Efficiency Variance
AT - ST x VR/HR xxx(F) U

Effectiveness Variance
AT - ST x FR/HR xxx(F) U

Capacity Variance
BT - AT x FR/HR xxx(F) U
 The San Mateo Furniture Company has established standard cost for the cabinet department, in which one size of
a single drawer style of dresser is produced. The standard cost of producing one of these dressers are shown below:

Materials - 50 board feet at P20.00 1,000.00

Direct Labor - 6 hours at P30.00 180.00
Indirect Costs:
Variable - 6 hours at P10.00 60.00
Fixed - 6 hours at P 5.00 30.00
Total 1,270.00
The cost of operations to produce 500 of these dressers during January are stated below:
There were no initial inventories:

Materials purchased, 28,000 board feet at P19.50 546,000.00

Materials used, 25,200 board feet
Direct Labor - 3,200 hours at P31.00 99,200.00
Indirect Costs:
Variable 38,400.00
Fixed 18,000.00

The flexible budget for this department at the monthly activity level used to set the overhead rates called
for 600 units for 3,600 direct labor hours of operations. At this level, the variable overhead cost was budgeted at P36,000
and the fixed cost at P18,000.

Required: Compute the following variations from standard cost. Label your answers with letter (F) for favorable and
letter (U) for unfavorable.
1. Material Price Variance
2. Material Price
3. Material Usage

Standard Material Cost (50 board feet x 500 dressers x P20.00) 500,000
Actual Material Cost (25,200 board feet x P19.50) 491,400
Net Favorable or Unfavorable Variance 8,600 F

TWO VARIANCE METHOD (USAGE)

Material Quantity (Usage) Variance ((25,200 - 25,000) x P20.00) 4,000 U
Material Price Variance (19.50 - 20.00 x 25,200) -12,600 F
Net Variance -8,600 F

THREE VARIANCE METHOD (PRICE)

Material Quantity Variance ((25,200 - 25,000) x P20.00) 4,000 U
Material Price Variance (19.50 - 20.00 x 25,200) -12,600 F
Quantity Price Variance 200 x .50 100
Net Variance 8,600 F

4. Labor Rate
5. Labor Efficiency

LABOR VARIANCE
ALC (Payroll) 3,200 hours x 31.00 99,200
SLC 6 hours x 500 dressers x 30.00 - 90,000
Net Favorable or Unfavorable Variance 9,200 U

TWO VARIANCE ANALYSIS

Time (Efficiency) Variance 3,200 - 3,000 x P30.00 6,000 U
Rate Variance 31.00 - 30.00 x 3,200 + 3,200 U
Net Favorable or Unfavorable Variance 9,200 U
THREE VARIANCE ANALYSIS
Time (Efficiency) Variance 3,200 - 3,000 x P30.00 6,000 U
Rate Variance 31.00 - 30.00 x 3,000 + 3,000 U
Time Rate Variance 200 hours x P1.00 200
Net Favorable or Unfavorable Variance 9,200 U

6. Factory Overhead Variance - Fixed Budget

a) Budget
b) Capacity
c) Efficiency
FACTORY OVERHEAD (FIXED BUDGET)
Total Factory Overhead Variance:
AFOH (38,400 + 18,000) 56,400
SFOH ((500 dressers x ((6 x 10.00) + (6 x 5.00)) 45,000
Net Favorable or Unfavorable Variance 11,400 U

THREE VARIANCE METHOD

Budget Variance 56,400 - (36,000 + 18,000) 2,400
Capacity Variance 3,600 - 3,200 x 15 6,000
Efficiency Variance 3,200 - 3,000 x 15 3,000
Net Variance 11,400 U

7. Factory Overhead Variance - Flexible Budget

a) Controllable and Volume Variance of the two variance overhead
b) Budget, Capacity, Efficiency Variance of the three variance method
c) Spending, Efficiency, effectiveness, and Capacity Variance of the four variance method.

FACTORY OVERHEAD (FLEXIBLE BUDGET)

TWO VARIANCE METHOD

Controllable Variance
AFOH 56,400
BASH:
Fixed (Budgeted) 18,000
Variable (600x60) 36,000 54,000
Net Favorable or Unfavorable 2,400 U

THREE VARIANCE METHOD

Budget Variance 56,400 - 54,000 2,400 U
Capacity Variance 3,600 - 3,200 x 15 6,000 F
Efficiency Variance 3,200 - 3,000 x 15 3,000 U
Net Variance 11,400 U

VOLUME VARIANCE
BASH: 54,000
SFOH 45,000
Net Favorable or Unfavorable 9,000 U

THREE VARIANCE METHOD

Budget Variance (Spending Variance)
AFOH 56,400
BAAH:
Fixed (Budgeted) 18,000
Variable (3,200 x 10.00) 32,000 50,000
Net Favorable or Unfavorable 6,400 U
Capacity Variance
3,600 - 3,200 x 5.00 2,000 F

Efficiency Variance
3,200 - 3,000 x 15 3,000 U

FOUR VARIANCE METHOD

Budget Variance (Spending Variance)
AFOH 56,400
BAAH:
Fixed (Budgeted) 18,000
Variable (AT x VR/HR) 32,000 50,000
Net Favorable or Unfavorable 6,400 U

Efficiency Variance
3,200 - 3,000 x 10 2,000 U

Effectiveness Variance
3,200 - 3,000 x 5 1,000 U

Capacity Variance
3,600 - 3,200 x 5 2,000 F