Standard Costing and Variance Analysis Formulas:
Cost acc 2
Standard Costing and Variance Analysis Formulas:
This is a collection of variance formulas / equations which can help you calculate variances for direct materials, direct labor, and factory overhead.
Direct materials variances formulas
Direct labor variances formulas
Factory overhead variances formulas
Direct Materials Variances:
Materials purchase price variance Formula:
Materials purchase price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)
Materials price usage variance formula
Materials price usage variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price)
materials quantity / usage variance formula
Materials price usage variance = (Actual quantity used × Standard price) – (Standard quantity allowed × Standard price)
Materials mix variance formula
(Actual quantities at individual standard materials costs) – (Actual quantities at weighted average of standard materials costs)
Materials yield variance formula
(Actual quantities at weighted average of standard materials costs) – (Actual output quantity at standard materials cost)
Direct Labor Variances:
Direct labor rate / price variance formula:
(Actual hours worked × Actual rate) – (Actual hours worked × Standard rate)
Direct labor efficiency / usage / quantity formula:
(Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate)
Direct labor yield variance formula:
(Standard hours allowed for expected output × Standard labor rate) – (Standard hours allowed for actual output × Standard labor rate)
Factory Overhead Variances:
Factory overhead controllable variance formula:
(Actual factory overhead) – (Budgeted allowance based on standard hours allowed*)
Factory overhead volume variance:
(Budgeted allowance based on standard hours allowed*) – (Factory overhead applied or charged to production**)
Factory overhead spending variance:
(Actual factory overhead) – (Budgeted allowance based on actual hours worked***)
Factory overhead idle capacity variance formula:
(Budgeted allowance based on actual hours worked***) – (Actual hours worked × Standard overhead rate)
Factory overhead efficiency variance formula:
(Actual hours worked × Standard overhead rate) – (Standard hours allowed for expected output × Standard overhead rate)
Variable overhead efficiency variance formula:
(Actual hours worked × Standard variable overhead rate) – (Standard hours allowed × Standard variable overhead rate)
Variable overhead efficiency variance formula:
(Actual hours worked × Fixed overhead rate) – (Standard hours allowed × Fixed overhead rate)
Factory overhead yield variance formula:
(Standard hours allowed for expected output × Standard overhead rate) – (Standard hours allowed for actual output × Standard overhead rate)
Problem 1:
Materials Variance Analysis:
The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter as standard for the production of its Type A lawn chair. During one month's operations, 100,000 meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased.
Required: Materials price and quantity variances.
Solution:
| |Meters of pipe |Unit Cost |Amount |
|Actual quantity purchased |100,000 |$0.78 actual |$78,000 |
|actual quantity purchased |100,000 |$0.80 standard |$80,000 |
| |----------- |----------- |----------- |
|Materials purchase price |100,000 |$(0.02) |$(2,000) fav. |
|variance | | | |
| |======= |======= |======= |
|Actual quantity used |87,300 |0.80 standard |$69,840 |
|Standard quantity allowed |86,400 |0.80 standard |$69120 |
| |------------- |------------- |------------- |
|Materials quantity variance |900 |0.80 |$720 Unfav |
| |======= |======= |======= |
Problem 2:
Materials Variance Analysis:
The standard price for material 3-291 is $3.65 per liter. During November, 2,000 liters were purchased at $3.60 per liter. The quantity of material 3-291 issued during the month was 1775 liters and the quantity allowed for November production was 1,825 liters. Calculate materials price variance, assuming that:
Required: Materials price variance, assuming that:
It is recorded at the time of purchase (Materials purchase price variance).
It is recorded at the time of issue (Materials price usage variance).
Problem 3:
Labor Variance Analysis:
The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation 4-802 at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct labor hours at a cost of $6.90 per hour.
Required: Calculate:
labor rate variance or Labor price variance.
Labor efficiency or usage or quantity variance.
Two, three & four variance methods
Factory Overhead Variance Analysis:
Example:
The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is:
|Fixed: |$4,500 / 5,000 hours |= |$0.90 |
|Variable: |$7,500 / 5,000 hours |= |$1.50 |
| | | |-------- |
| | | |$2.40 |
For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard hours allowed for actual production were 4,500.
Required: Factory overhead variances using two, three and four variance methods.
ANSWER:
Two Variance Method:
|Actual factory overhead | |$11,000 |
|Budgeted allowance based on standard hours allowed: | | |
|Fixed expenses budgeted |$4,500 | |
|Variable expenses (4,500 standard hours allowed × $1.50 variable overhead |$6,750 | |
|rate) | | |
| |----------- |$11,250 |
| | |----------- |
|Favorable controllable variance | |$ (250) fav. |
| | |====== |
|Budgeted allowance based on standard hours allowed | |$11,250 |
|Overhead charged to production (4,500 standard hours allowed × $2.40 | |$10,800 |
|standard rate) | | |
| | |------------ |
|Unfavorable volume variance | |$450 unfav. |
Three Variance Method:
|Actual factory overhead | |$11,000 |
|Budgeted allowance based on actual hours worked: | | |
| Fixed expenses budgeted |$4,500 | |
| Variable expenses (4,400 actual hours worked × $1.50 variable overhead |$6,600 | |
|rate) | | |
| |----------- |$11,100 |
| | |----------- |
|Favorable spending variance | |$ (100) fav. |
| | |====== |
|Budgeted allowance based on actual hours worked | |$11,100 |
|Actual hours worked × Standard overhead rate (4,400 hours × $2.40) | |$10,560 |
| | |------------ |
|Unfavorable spending variance | |$540 unfav. |
| | |====== |
|Actual hours worked × Standard overhead rate (4,400 hours × $2.40) | |$10,560 |
|Overhead charged to production (4,500 standard hours allowed × $2.40 | |$10,800 |
|standard rate) | | |
| | |----------- |
|Favorable efficiency variance | |$ (240) fav. |
Four Variance Method:
|Actual factory overhead | |$11,000 |
|Budgeted allowance based on actual hours worked: | | |
| Fixed expense budgeted |$4,500 | |
| Variable expenses (4,400 actual hours worked × $1.50 variable |$6,600 | |
|overhead rate) | | |
| |----------- |$11,100 |
| | |----------- |
|Favorable spending variance | |$ (100) fav. |
| | |====== |
|Budgeted allowance based on actual hours worked | |$11,100 |
|Budgeted allowance based on standard hours allowed | |$11,250 |
| | |----------- |
|Favorable variable overhead efficiency variance | |$ (150) fav. |
| | |====== |
|Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed| |$3,960 |
|overhead rate) | | |
|Standard hours allowed × fixed overhead rate (4,500 actual hours × | |4,050 |
|$0.90) | | |
| | |----------- |
|Favorable fixed overhead efficiency variance | |$ (90) fav. |
| | |====== |
|Normal capacity hours (5000) × Fixed overhead rate ($0.90) | |$4,500 |
|Actual hours worked (4,400) × Fixed overhead rate ($0.90) | |$3,960 |
| | |------------ |
|Unfavorable Idle capacity variance (600 hours × $0.90) | |$540 unfav. |
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