Standard Costing System Chapter 4 Managerial Accounting Concepts

Standard Costing System Chapter 4 Managerial Accounting Concepts and Empirical Evidence

Standard Costing Variances Material Variances Standard Cost Variances Labor Variances Overhead (Indirect Costs) Variances Price Quantity Rate Efficiency Spending Efficiency Budget Volume Managerial Accounting Concepts and Empirical Evidence

Data for Standard Cost Ren Corporation, Cutting Dept. Standards Normal level of production (per month) is 5000 desks 1 sheet of plywood/desk = $20. 00 per desk @ $ 20. 00 per sheet 2 direct labor hours/desk = $30. 00 per desk @ $ 15. 00 per hour Indirect costs (2 hours/desk) Variable : $15, 000 / 10, 000 hours = $ 3. 00 per desk Fixed : $5, 000 / 10, 000 hours = $ 1. 00 per desk Total Standard Costs = $ 54. 00 per desk Managerial Accounting Concepts and Empirical Evidence

Data for Standard Cost Ren Corporation, Cutting Dept. Actuals u Number of desks produced 4, 800 u Sheets of plywood purchased 5, 200 Sheets of plywood put into production 4, 824 u Direct labor hours worked 9, 500 u Plywood cost per sheet $ 21 u Labor cost per hour $ 16 Indirect costs Variable Fixed $17, 100 $ 4, 900 u u Managerial Accounting Concepts and Empirical Evidence

Analysis of Differences (Variances) between Actuals and Standards, Basic Parameters !! u u u Actual Quantity Purchased (AQ) Actual Quantity put into Production (AU) Actual Price (AP) Standard Quantity Required (SQ) Standard Price (SP) Managerial Accounting Concepts and Empirical Evidence

Analysis of Differences (Variances) between Actuals and Standards, Ren Corporation Cutting Dept Materials 1) 5, 200 (AQ) * $ 21 (AP) = $ 109, 000 2) 5, 200 (AQ) * $ 20 (SP) = $ 104, 000 Price Variance (1 -2) Unfavorable = $ 5, 200 3) 4, 824 (AU) * $ 20 (SP) = $ 96, 480 4) 4, 800 (SQ) * $ 20 (SP) = $ 96, 000 Quantity Variance(3 -4) Unfavorable = Managerial Accounting Concepts and Empirical Evidence $ 4, 80

Analysis of Differences (Variances) between Actuals and Standards, Ren Corporation Cutting Dept Labor 1) 9, 500 (AQ) * $ 16 (AP) = $ 152, 000 2) 9, 500 (AQ) * $ 15 (SP) = $ 142, 500 Rate Variance (1 -2) Unfavorable = $ 9, 500 3) = $144, 000 Efficiency Variance(2 -3) Favorable = $ (1, 500) 9, 600 (SQ) * $ 16 (SP) 2 hrs Req. per desk * 4, 800 desk = 9, 600 standard req. hrs for the level of production achieved Accounting Managerial Concepts and Empirical Evidence

Analysis of Differences (Variances) between Actuals and Standards, Ren Corporation Cutting Dept Variable Overhead 1) 9, 500 (AQ) * $ 1. 80 (AP) = $ 17, 100 2) 9, 500 (AQ) * $ 1. 50 (SP) = $ 14, 250 Spending Variance(1 -2) Unfavorable = $ 2, 850 3) $14, 400 9, 600 (SQ) * $ 1. 50 (SP) = Efficiency Variance(2 -3) Favorable = Managerial Accounting Concepts and Empirical Evidence $ (150)

Analysis of Differences (Variances) between Actuals and Standards, Ren Corporation Cutting Dept Fixed Overhead 1) Actual fixed overhead = $ 4, 900 2) Budgeted Fixed overhead = $ 5, 000 Budget Variance (1 -2) Favorable = $ (100) 3) = $4, 800 = $ 200 Standard Fixed overhead for the level of production achieved ($ 0. 50 * 9, 600) Volume Variance(2 -3) unfavorable Managerial Accounting Concepts and Empirical Evidence