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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