Professional Documents
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Chapter 12
Quantity Price
Standards Standards
Time Rate
Standards Standards
Quantity Rate
Standards Standards
Variance Analysis
Variance Analysis
AQ x AP = 210 x AP = 1,029
(21) F Price variance
AQ x SP = 210 x 5 = 1,050
50 U Quantity variance
SQ x SP = (2000 x 0.1) x 5 = 1,000
29 U Total Variance
Hanson’s
Hanson’s material
material price
price variance
variance (MPV)
(MPV)
for
for the
the week
week was:
was:
a.a. $170
$170 unfavorable.
unfavorable.
b.
b. $170
$170 favorable.
favorable.
c.c. $800
$800 unfavorable.
unfavorable.
d.
d. $800
$800 favorable.
favorable.
Hanson’s
Hanson’s material
material quantity
quantity variance
variance (MQV)
(MQV)
for
for the
the week
week was:
was:
a.a. $170
$170 unfavorable.
unfavorable.
b.
b. $170
$170 favorable.
favorable.
c.c. $800
$800 unfavorable.
unfavorable.
d.
d. $800
$800 favorable.
favorable.
Hanson’s
Hanson’s material
material quantity
quantity variance
variance (MQV)
(MQV)
for
for the
the week
week was:
was:
a.a. $170
$170 unfavorable.
unfavorable.
b.
b. $170
$170 favorable.
favorable.
c.c. $800
$800 unfavorable.
unfavorable.
d.
d. $800
$800 favorable.
favorable.
MQV = SP(AQ - SQ)
MQV = $4.00(1,700 lbs - 1,500 lbs)
MQV = $800 unfavorable
AQ x AP = 1,700 x AP = 6,630
(170) F Price variance
AQ x SP = 1,700 x 4 = 6,800
800 U Quantity variance
SQ x SP = (1000 x 1.5) x 4 = 6,000
630 U Total Variance
Actual Quantity
Used Standard
Quantity
× ×
Standard Price Standard Price
1,700 lbs. 1,500 lbs.
× ×
$4.00 per lb. $4.00 per lb.
= $6,800 = $6,000
Quantity variance is
unchanged because
actual and standard Quantity variance
quantities are unchanged. $800 unfavorable
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 40
Learning Objective 2
AH x AR = 2,500 x AR = 26,250
1,250 U Rate variance
AH x SR = 2,500 x 10 = 25,000
1,000 U Efficiency variance
SH x SR = (2000 x 1.2) x 10 = 24,000
2,250 U Total Variance
AH = Actual hour paid (and worked in this case)
AR = Actual rate per hour
SR = Standard rate per hour
SH = (Aouput x standard hours for the production)
= standard hours allowed for the actual output
Quality of production
supervision.
Quality of training
provided to employees.
Production Manager
Hanson’s
Hanson’s labor
labor rate
rate variance
variance (LRV)
(LRV) for
for the
the
week
week was:
was:
a.
a. $310
$310 unfavorable.
unfavorable.
b.
b. $310
$310 favorable.
favorable.
c.
c. $300
$300 unfavorable.
unfavorable.
d.
d. $300
$300 favorable.
favorable.
Hanson’s
Hanson’s labor
labor rate
rate variance
variance (LRV)
(LRV) for
for the
the
week
week was:
was:
a.
a. $310
$310 unfavorable.
unfavorable.
b.
b. $310
$310 favorable.
favorable.
c.
c. $300
$300 unfavorable.
LRV = AH(AR - SR)
unfavorable.
d. $300 favorable. LRV = 1,550 hrs($12.20 - $12.00)
d. $300 favorable. LRV = $310 unfavorable
Hanson’s
Hanson’s labor
labor efficiency
efficiency variance
variance (LEV)
(LEV)
for
for the
the week
week was:
was:
a.
a. $590
$590 unfavorable.
unfavorable.
b.
b. $590
$590 favorable.
favorable.
c.
c. $600
$600 unfavorable.
unfavorable.
d.
d. $600
$600 favorable.
favorable.
AH x AR = 1,550 x AR = 18,910
310 U Rate variance
AH x SR = 1,550 x 12 = 18,600
600 U Efficiency variance
SH x SR = (1000 x 1.5) x 12 = 18,000
910 U Total Variance
AH = Actual hour paid (and worked in this case)
AR = Actual rate per hour
SR = Standard rate per hour
SH = (Aouput x standard hours for the production)
= standard hours allowed for the actual output
AH x AR = 2,500 x AR = 10,500
500 U Rate variance
AH x SR = 2,500 x 4 = 10,000
400 U Efficiency variance
SH x SR = (2000 x 1.2) x 4 = 9,600
900 U Total Variance
AH = Actual hour paid (and worked in this case)
AR = Actual rate per hour
SR = Standard rate per hour
SH = (Aouput x standard hours for the production)
= standard hours allowed for the actual output
Hanson’s
Hanson’s rate
rate variance
variance (VMRV)
(VMRV) for for variable
variable
manufacturing
manufacturing overhead
overhead for
for the
the week
week was:
was:
a.
a. $465
$465 unfavorable.
unfavorable.
b.
b. $400
$400 favorable.
favorable.
c.
c. $335
$335 unfavorable.
unfavorable.
d.
d. $300
$300 favorable.
favorable.
Hanson’s
Hanson’s efficiency
efficiency variance
variance (VMEV)
(VMEV) forfor
variable
variable manufacturing
manufacturing overhead
overhead for
for the
the week
week
was:
was:
a.
a. $435
$435 unfavorable.
unfavorable.
b.
b. $435
$435 favorable.
favorable.
c.
c. $150
$150 unfavorable.
unfavorable.
d.
d. $150
$150 favorable.
favorable.
Hanson’s
Hanson’s efficiency
efficiency variance
variance (VMEV)
(VMEV) for for
variable
variable manufacturing
manufacturing overhead
overhead forfor the
the week
week
was:
was:
a.
a. $435
$435 unfavorable.
unfavorable.
b.
b. $435
$435 favorable.
favorable. 1,000 units × 1.5 hrs per unit
c.
c. $150
$150 unfavorable.
unfavorable.
d.
d. $150
$150 favorable.
favorable.
VMEV = SR(AH - SH)
VMEV = $3.00(1,550 hrs - 1,500 hrs)
VMEV = $150 unfavorable
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 68
Quick Check
Summary: The line-by-line method
AH x AR = 1,550 x AR = 5,115
465 U Rate variance
AH x SR = 1,550 x 3 = 4,650
150 U Efficiency variance
SH x SR = (1000 x 1.5) x 3 = 4,500
615 U Total Variance
AH = Actual hour paid (and worked in this case)
AR = Actual rate per hour
SR = Standard rate per hour
SH = (Aouput x standard hours for the production)
= standard hours allowed for the actual output
Larger variances, in
How do I know dollar amount or as
which variances to a percentage of the
investigate? standard, are
investigated first.
Favorable Limit
• •
• • •
Desired Value
• •
Unfavorable Limit •
•
1 2 3 4 5 6 7 8 9
Variance Measurements
Advantages
Enhances
Simplified responsibility
bookkeeping accounting
Supplementary Note
Revenue and
Revenue/Cost Planning Activity Flexible Spending Actual
Formulas Budget Variances Budget Variances Results
Number of lawns (Q) 500 550 550
Revenue ($75Q) $ 37,500 $ 3,750 F $ 41,250 $ 1,750 F $ 43,000
Expenses:
Wages and salaries ($5,000 + $30Q) $ 20,000 $ 1,500 U $ 21,500 $ 2,000 U $ 23,500
Gasoline and supplies ($9Q) 4,500 450 U 4,950 150 U 5,100
Equipment maintenance ($3Q) 1,500 150 U 1,650 350 F 1,300
Office and shop utilities ($1,000) 1,000 - 1,000 50 F 950
Office and shop rent ($2,000) 2,000 - 2,000 - 2,000
Equipment Depreciation ($2,500) 2,500 - 2,500 - 2,500
Insurance ($1,000) 1,000 - 1,000 200 U 1,200
Total expenses 32,500 2,100 U 34,600 1,950 U 36,550
Net operating income $ 5,000 $ 1,650 F $ 6,650 $ 200 U $ 6,450
Appendix 12A
(Appendix 12A)
Compute and interpret the
fixed overhead budget and
volume variances.
Budget
variance
Actual Budgeted
Budget
= fixed – fixed
variance
overhead overhead
Volume
variance
Fixed
Budgeted
Volume overhead
= fixed –
variance applied to
overhead
work in process
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 82
Fixed Overhead Volume Variance:
The traditional method
Actual Budgeted Fixed
Fixed Fixed Overhead
Overhead Overhead Applied
DH × FR SH × FR
Volume
variance
Volume variance = FPOHR × (DH – SH)
ColaCo
Production and Machine-Hour Data
Budgeted production 30,000 units
Standard machine-hour per unit 3 hours
Budgeted machine-hour 90,000 hours
Actual production 28,000 units
Standard machine-hour allowed for the actual production 84,000 hours
Actual machine-hour 88,000 hours
ColaCo
Cost Data
Budgeted variable manufacturing overhead $ 90,000
Budgeted fixed manufacturing overhead 270,000
Total budgeted manufacturing overhead $ 360,000
Predetermined $360,000
=
overhead rate 90,000 Machine-hour
Predetermined
= $4.00 per machine-hour
overhead rate
Overhead
= $336,000
applied
Actual = = 280,000
10,000 U Budget variance
Budgeted = = 270,000
18,000 U Volume variance
SH x SR = (28000 x 3) x 3 = 252,000
28,000 U Total Underapplied overhead
SH = (Aouput x standard hours for the production)
= standard hours allowed for the actual output
Actual Budgeted
Budget
= fixed – fixed
variance
overhead overhead
Budget
= $280,000 – $270,000
variance
Budget
= $10,000 Unfavorable
variance
Volume
variance
= $270,000 – ( $3.00 per
machine-hour
×
$84,000
machine-hour )
Volume
= $18,000 Unfavorable
variance
Volume
variance
=
$3.00 per
machine-hour
× ( 90,000 – 84,000
machine-hour machine-hour )
Volume = 18,000 Unfavorable
variance
Let’s look at a
graph showing
fixed overhead
variances. We will
use ColaCo’s
numbers from the
previous example.
Budget
$270,000
at
li ed r
pp u
a ho
ad r d
he a
ver tand
d o r s
ix e pe
F . 00 Denominator
$3 hours
0
0 Machine-hours (000) 90
at
li ed r
pp u
a ho
ad r d
he a
ver tand
d o r s
ix e pe
F . 00 Denominator
$3 hours
0
0 Machine-hours (000) 90
In a standard
cost system:
Unfavorable Favorable
variances are equivalent variances are equivalent
to underapplied overhead. to overapplied overhead.
ColaCo
Computation of Underapplied Overhead
Predetermined overhead rate (a) $ 4.00 per machine-hour
Standard hours allowed for the actual output (b) 84,000 machine hours
Manufacturing overhead applied (a) × (b) $ 336,000
Actual manufacturing overhead $ 380,000
Manufacturing overhead underapplied or
overapplied $ 44,000 underapplied
AH x AR = = 100,000
12,000 U Rate variance
AH x SR = 88,000 x 1 = 88,000
4,000 U Efficiency variance
SH x SR = 84,000 x 1 = 84,000
(= 28,000 x 3) 16,000 U Total Variance
SR = Standard rate per hour = Total underapplied
SH = (Aouput x standard hours for the production) variable overhead
= standard hours allowed for the actual output
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 100
Computing the Variable Overhead Variances:
The factored equation method
= $12,000 unfavorable
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 101
Computing the Variable Overhead Variances
The traditional method
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 102
Computing the Sum of All Variances
ColaCo
Computing the Sum of All variances
Variable overhead rate variance $ 12,000 U
Variable overhead efficiency variance 4,000 U
Fixed overhead budget variance 10,000 U
Fixed overhead volume variance 18,000 U
Total of the overhead variances $ 44,000 U
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 103
Journal Entries to Record
Variances
Appendix 12B
(Appendix 12B)
Prepare journal entries
to record standard
costs and variances.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 105
Appendix 12B
Journal Entries to Record Variances
We will use information from the Glacier Peak Outfitters
example presented earlier in the chapter to illustrate journal
entries for standard cost variances. Recall the following:
Material
Material Labor
Labor
AQ
AQ ××AP
AP == $1,029
$1,029 AH
AH ××AR
AR == $26,250
$26,250
AQ
AQ ×× SP
SP == $1,050
$1,050 AH
AH ×× SR
SR == $25,000
$25,000
SQ
SQ ×× SP
SP == $1,000
$1,000 SH
SH ×× SR
SR == $24,000
$24,000
MPV
MPV == $21
$21 FF LRV
LRV == $1,250
$1,250 UU
MQV
MQV == $50
$50 UU LEV
LEV == $1,000
$1,000 UU
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 107
Appendix 12B
Recording Labor Variances
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 108
Cost Flows in a Standard Cost System
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 109
End of Chapter 12
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 110