AKUNTANSI MANAJEMEN OPENCOURSEWARE UNIVERSITAS PEMBANGUNAN JAYA ch9 Slide ACC204 ch9

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Standard

Costing: A

Managerial

Control Tool

CHAPTER

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9 -2

1.

Tell how unit standards are set and why

standard costing systems are adapted.

2.

State the purpose of a standard cost sheet.

3.

Describe the basic concepts underlying

variance analysis, and explain when

variances should be investigated.

4

. Compute the material and labor variances,

and explain how they are used for control.

Objectives

After studying this

chapter, you should

be able to:

After studying this

chapter, you should

be able to:

Continued

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5.

Calculate the variable and fixed overhead

variances, and give their definitions.

6.

Appendix: Prepare journal entries for

materials and labor variances, and show how

to account for overhead variances.

Objectives

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Cost control often means

the difference between

success and failure.

Cost control often means

the difference between

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Why Standard Cost Systems

Are Adopted

Standard costing systems enhance

planning

and control

and improve performance

measurement.

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Direct Direct

Materials Labor Overhead

Actual costing system Actual Actual Actual

Normal costing system Actual Actual Budgeted

Standard costing system Standard Standard Standard

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Standard Cost Sheet

for Corn Chips

Standard Standard Standard

Price Usage Cost Subtotal Description

Direct materials:

Yellow corn $0.006 18 oz. $0.108 Cooking oil 0.031 2 oz. 0.062 Salt 0.005 1 oz. 0.005 Lime 0.400 0.01 oz. 0.004 Bags 0.044 1 bag. 0.044

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Standard Cost Sheet

for Corn Chips

Standard Standard Standard

Price Usage Cost Subtotal Description

Direct materials $0.223

Direct labor:

Inspectors $7.000 0.0070 hr. $0.049 Machine operators 10.000 0.0008 hr. 0.008

Total direct labor 0.057

Overhead:

Variable overhead 3.850 0.078 hr. $0.030 Fixed overhead 32.050 0.0078 hr. 0.250

Total overhead 0.280

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During the first week of March, 100,000

packages of corn chips are produced.

During the first week of March, 100,000

packages of corn chips are produced.

The standard quantity of yellow corn meal per package is 18 ounces.

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SQ

= Unit quantity standard x Actual output

= 18 x 100,000

= 1,800,000 ounces

Standard Quantity of Materials Allowed

SH

= Unit labor standard x Actual output

= 0.0008 x 100,000

= 80 direct labor hours

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Total variance = Price variance

+

Usage variance

= (AP – SP)AQ

+

(AQ – SQ)SP

= [(AP x AQ) – (SP x AQ)]

+

[(SP x AQ) – (SP x SQ)]

= (AP x AQ) – (SP x AQ)]

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Variance Analysis: General Description

1. AP x AQ 1. AP x AQ

(Actual Quantity (Actual Quantity of Input at Actual of Input at Actual Price)

Price)

2. SP x AQ

(Actual Quantity of Input at

Standard Price)

3. SP x SQ 3. SP x SQ (Standard (Standard

Quantity of Input Quantity of Input at Standard Price) at Standard Price)

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Favorable variances occur whenever the

opposite occurs. Favorable variances

occur whenever the opposite occurs. Unfavorable variances

occur whenever actual prices or usage of inputs are greater than standard

prices or usage.

Unfavorable variances occur whenever actual prices or usage of inputs are greater than standard

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Cost

Time

$110,000

$100,000

$ 90,000 x

x

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Variance Analysis: Materials and Labor

Actual production 48,500 bags of corn chips

Actual cost of corn 780,000 ounces of $0.0069 = $5,382 Actual cost of

inspection labor 360 hours at $7.35 = $2,646

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9 -16 $558 F $558 F Usage Variance Usage Variance $702 U $702 U Price Variance Price Variance $144 U $144 U Total Variance Total Variance

Variance Analysis: Columnar Approach

AQ x AP AQ x AP

780,000 x 0.0069 780,000 x 0.0069 $5,382

$5,382

AQ x SP AQ x SP

780,000 x $.0.0060 780,000 x $.0.0060 $4,680

$4,680

SQ x SP

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MPV = (AP – SP)AQ

Material Price Variance

The actual

price per unit

The standard

price per unit

The actual

quantity of

material used

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MPV = (AP – SP)AQ

= ($0.0069 – $0.0060)780,000

= $0.0009 x 780,000

= $702 U

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Direct Materials Usage Variance

MUV = (AQ – SQ)SP

The actual The actual quantity of quantity of materials used materials used The standard The standard quantity of quantity of materials materials

allowed for the

actual output

The standard

price per unit

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MUV = (AQ – SQ)SP

Direct Materials Usage Variance

= (780,000 – 873,000)($0.006)

= 93,000 x $0.006

= $558 F

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LRV = (AR – SR)AH

The actual hourly wage

rate

The standard hourly wage

rate

The actual direct labor

hours used

Labor Rate Variances

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Labor Rate Variances

LRV = (AR – SR)AH

= ($7.35 – $7.00)360

= $0.35 x 360

= $126 U

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$269.50 U $269.50 U Total Variance Total Variance AH x AR

360 x $735 $2,646

AH x SR AH x SR

360 x $7.00 360 x $7.00

$2,520 $2,520

SH x SR SH x SR

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LEV = (AH – SH) SR

The actual direct labor

hours used

The standard direct labor

hours that should have

been used

The standard hourly wage

rate

Labor Efficiency Variances

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Labor Efficiency Variances

LEV = (AH – SH)SR

= (360 – 339.5)$7

= 20.5 x $7

= $143.50 U

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Variable Overhead Variances

Variable overhead rate (standard) $3.85/DLH Actual variable overhead costs $1,600

Actual hours worked 400

Bags of chips produced 48,500

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$144 U $144 U Total Variance Total Variance $84 U $84 U Efficiency Variance Efficiency Variance $60 U $60 U Spending Spending Variance Variance Actual VO Actual VO $1,600 $1,600

VO Rate x VO Rate x Actual Hours Actual Hours

$1,540 $1,540

VO Rate x Standard Hours

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VOSV = (AVOR x AH) – (SVOR x AH)

Variable Overhead

Spending Variances

Variable Overhead

Spending Variances

= (AVOR – SVOR)AH

= ($4.00 – $3.85)400

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Crunch Chips, Inc.

Crunch Chips, Inc.

Flexible Budget Performance Report

For the Week Ended March 8, 2004

Cost Cost Formula Formula

Actual Actual

Costs

Costs BudgetBudget

Spending Spending

Variance Variance

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Crunch Chips, Inc. Performance Report

For the Week Ended March 8, 2004

Cost Cost Formula Formula Actual Actual Costs

Costs BudgetBudget

Spending Spending

Variance Variance

Gas $3.00 $1,190 $1,200 $10 F Electricity 0.78 385 312 73 U Water 0.07 25 28 3 F Total cost $3.85 $1,600 $1,540 $60 U

Budget Budget for for Standard Standard Hours

Hours EfficiencyEfficiency_Variance_Variance

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Fixed Overhead Variances

Budgeted fixed overhead $749,970 Practical activity 23,400 direct labor hours Standard fixed overhead rate $32.05

Hours allowed to produce 3,000,000 bags of chips: 0.078 x 3,000,000 = $23,400

Budgeted or Planned Items

Actual Results

Actual production 2,750,000 bags of chips Actual fixed overhead cost $749,000 Standard hours allowed for actual

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Total Fixed Overhead Variances

Applied fixed overhead

Standard fixed overhead rate x Standard hours

=

= $32.05 x 21,450

= $687,473 (rounded) Total fixed

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$61,527 U $61,527 U Total Variance Total Variance $970 F

$970 F Spending Spending

Variance Variance Actual FO

$749,000

Budgeted FO Budgeted FO

$749,970

$749,970 Applied FOApplied FO_$687,473_$687,473

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Crunch Chips, Inc. Performance Report For the Year Ended 2004

Actual Actual

Costs Costs

Budgeted Budgeted

Cost

Cost Variance_Variance Depreciation $530,000 $530,000 $ ---- Salaries 159,370 159,970 600 F Taxes 50,500 50,000 500 U Insurance 9,130 10,000 870 F Total fixed overhead $749,000 $749,970 $970 F

Fixed Fixed

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Volume Variance

Volume variance = $32.05(23,400 – 21,450)

= ($32.05 x 23,400) – ($32.05 x 21,450) = $749,970 – $687,473

= Budgeted fixed overhead – Applied fixed overhead

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Appendix:

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The actual price is $0.0069 per ounce of

corn and standard price is $0.0060, and

780,000 ounces of corn are purchased.

The actual price is $0.0069 per ounce of

corn and standard price is $0.0060, and

780,000 ounces of corn are purchased.

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment. Materials Inventory 4 680 00

Materials Price Variance 702 00

Accounts Payable 5 382 00

Material Price Variance Material Price Variance

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During the period 780,000 ounces of corn

is placed into production. The

standard quantity is 873,000 ounces,

and standard price is $0.006.

During the period 780,000 ounces of corn

is placed into production. The

standard quantity is 873,000 ounces,

and standard price is $0.006.

merchandise and to control the payment. Work in Process 5 238 00

Materials Usage Variance 558 00

Materials Inventory 4 680 00

Material Usage Variance

Material Usage Variance Material Usage Variance

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inspection hours, while the standard hours

for the units produced is 339.5 hours. The

actual rate is $7.35 per hour while the

standard rate is $7.00 per hour.

inspection hours, while the standard hours

for the units produced is 339.5 hours. The

actual rate is $7.35 per hour while the

standard rate is $7.00 per hour.

merchandise and to control the payment. Work in Process 2 376 00

Labor Efficiency Variance 143 50 Labor Rate Variance 126 00

Accrued Payroll 2 646 00

Labor Variances

Labor Variances Labor Variances

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At the end of the year, the variances for

materials and labor are usually closed to

Cost of Goods Sold.

materials and labor are usually closed to

Cost of Goods Sold.

merchandise and to control the payment. Cost of Goods Sold 971 50

Material Price Variance 702 00 Labor Efficiency Variance 143 50 Labor Rate Variance 126 00

Closing Variances

Closing Variances Closing Variances

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At the end of the year, the variances for

Cost of Goods Sold.

merchandise and to control the payment. Material Usage Variance 558 00

Cost of Goods Sold 558 00

Closing Variances

Closing Variances Closing Variances

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The End

Chapter Nine

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