Variance Analysis in Cost Accounting
Explore the intricacies of variance analysis in cost accounting through the examination of materials and labor variances. Learn how to calculate and interpret variances to understand the efficiency and effectiveness of operational processes. Dive into real-world scenarios to apply variance analysis concepts effectively.
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Presentation Transcript
Analyzing Variances Materials Standards & Variances ) * ( . : -
1 - Quantity Variance . Materials Quantity Variance Actual Quantity x Standard Price- Quantity x Standard Price MQ Variance = (AQ x SP) (SQ x SP) = (AQ SQ) SP Total Materials Variance = MP Variance + MQ Variance Standard
Price 2 - Variance . . Materials Price Variance ( ) Standard Price x Actual Actual Price x Actual Quantity Quantity MP Variance = (AP x AQ) (SP x AQ) = (AP SP) AQ
1 - Labor Rate Variance . Labor Rate Variance Standard Price Actual Price x Actual Hours x Actual Hours LR Variance = (AP x AH) (SP x AH) = (AP SP) AH
) ( Labor Rate Variance 2 - . Labor Efficiency Variance Standard Hours Actual Hours x Standard Price x Standard Price LE Variance = (AH x SP) (SH x SP) = (AH SH) SP Total Labor Variance = LR Variance + LE Variance
Questions 1 / Materials and labor variance analysis .The following data pertain to the first week operations during the month of June: Materials : Actual purchases 1,500 units at $3.80 per unit Actual usage 1,350 units Standard usage .. 1,020 units at $4.00 per unut Direct labor Actual hours 310 hours at $12.10 per hour Standard hours . 340 hours at $12.00 per hour Required: Compute the following variances. Indicating whether the variances favorable or unfavorable: -Materials purchase price variance, price usage variance , and quantity variance -Labor rate and efficiency variances. Solution Purchase price variance = ( AQ *AP) (AQ*SP) = ( 1500* 3.8 ) (1500*4 ) = 300$ Price usage variance = ( AQ * AP ) ( AQ * SP ) = ( 1350 * 3.8 ) ( 1350 * 4 ) = 270$ Favorable Quantity Variance = ( AQ * SP ) ( SQ *SP ) = ( 1350 * 4 ) ( 1020 * 4 ) = 1320 Favorable Labor Rate Variance = ( AH * AR ) ( AH * SR ) = ( 310 * 12.10 ) ( 310 * 12.00 ) = 31 unfavorable Laborefficiency variance = ( AH * SR ) ( SH * SR ) = ( 310* 12.00 ) ( 340 * 12.00) = 36 Favorable
2 / Variance analysis : materials , labor , and factory overhead. ArmandoCorporation manufactues a product with the following standard costs: Direct materials 20 yards @ $ 1.35 per yard .. $27 Direct labor 4 hours @ $9 per hour 36 Factory overhead 1 direct labor hour @ $7.50 per hour : ratio of Variable to fixed factory overhead is 2.1 30 Total standard cost per unit of output ... $93 Standards are based on normal monthly capacity of 2.400 direct laber hours. The following information pertains to July , 19A : Units produced in July ... 500 Direct materials purchased 18,000 yards @ $1.38 per yard .. $24,840 Direct materials used 9,500 yards Direct laber 2,100 hours @ $9.15 per hour 19,215 Actual factory overhead . 16,650 Required : ( 1 ) Compute the variable factory overhead rate per direct labor hour and the total fixed factory overhead based on normal monthly capacity . ( 2 ) Compute two variances each for materials labor , and factory overhead .
Solution ( 1 ) 7.50 * 1/3 = 2.5$ per hour fixed vate 7.50 * 2/3 = 5 per hour variable vate 2400 * 2.5 = 6000 fixed F. O . H based on normal capacity. ( 2 ) Material variances Price variances = ( PQ * AP ) ( PQ * SP ) = ( 18000 * 1.38 ) ( 18000 * 1.35 ) = 540 unfavorable Quantity variances = ( AQ * SP ) ( SQ * SP ) = ( 9500 * 1.35 ) ( 10000 * 1.35 ) = 675 favorable 20 * 500 units = 10000 yards Labor variances Rate variances = ( AH * AR ) ( AH * SR ) =( 2100 * 9.15 ) ( 2100 * 9 ) = 315 unfavorable Labor efficiency variance = ( AH * SR ) ( SH * SR ) = ( 2100* 9 ) ( 4 * 9 ) = 17.100 Factory overhead Two variance method Controllable variance = ( A . OH ) (( F . OH . B + ( V . SR * SH)) = 16650 (( 6000 + ( 5 * 2000) = 16650 16000 = 650 4 * 500 = 2000 SH Volume Variance = (( F . OH . B + ( V . SR * SH )) ( T . SR * SH ) = (( 6000 + ( 5 * 2000 )) = 16000 ( 7.50 * 2000 ) = 16000 15000 = 1000
3 / Variance analysis : materials , labor , and factory overhead . Alpha Company has developed the following standard unit cost for product beta , the only product produced in gamma department : Direct materials .. 4bs . @ $3 = $12 Direct labor . 2 hrs. @ 9 = 18 Variable overhead . 2 hrs @ 2 = 4 Fixed overhead . 2 hrs @ 5 = 10 Standard cost per unit of beta produced .$44 The company recognizes the materials price variance at the point of purchase . Fixed factory overhead is budgeted at $120,000 . Actual activity for January included : 50,000 lbs . of direct materials purchased for $149,000 total. 10,000 unit of beta were produced . 41,500 lbs . of direct materials were used in current production . The direct laber payroll was $196,560 ( 21,000 hrs . @ $9.36 ) . Actual factory overhead costs totaled $158.000. Required : Compute two variances for materials and laber , and reconcile the overall fatory overhead variance using three- variance method B . Indicate whether the variances are favorable or unfavorable .
