Ch. 11 Standard Costs and Variances

manufacturers deal with DM, DL, and MOH, which all have…

variances

what variances can DM have?

price variance & quantity/efficiency variance

what variances can DL/MOH have?

rate variance & efficiency variance

price, quantity, rate, and efficiency variances are all inside…

the flexible budget variance

input

what we put into the good

ex. feet, lbs, ounces, hrs of labor, etc

output

the good itself

ex. pair of jeans

standard quantity per unit is AKA

input ratio

standard unit cost

expected/budgeted cost of 1 unit

standard DM cost per unit

DM standard quantity * DM standard price

standard DL cost per unit

DL standard quantity * DL standard rate

standard MOH cost per unit

standard quantity of cost driver(s) * POHR(s)

overall standard unit cost

standard DM cost per unit + standard DL cost per unit + standard MOH cost per unit

standard unit costs are used at the beginning of the period to…

determine budgets

standard unit costs are used at the end of the period to…

evaluate performance & adjust operations

price variance

comparison of the actual cost of an input to the standard cost of an input

did we pay more or less for the inputs than expected?

quantity variance

comparison of what we actually used to make product vs. what we should’ve used

variances can be labeled as….

favorable (F) or unfavorable (U)

favorable

input cost less than expected or used less than “allowed”

unfavorable

input cost more than expected or used more than “allowed”

materiality also applies to…

these variances (DM, DL, MOH)

why do we have both DM purchased & DM used (AQ)?

you can buy more or less materials than what you actually use

with the forks diagrams, which variance uses a bent fork? DM, DL, or MOH?

DM

(DM fork) actual calculation

AQ * AP

(DM fork) half standard calculation (actual quantity purchased)

AQ * SP

(DM fork) standard calculation

SQ * SP

(DM fork) half standard calculation (actual quantity used)

AQ * SP

(DM fork) materials price variance calculation

actual - half standard

the left side of the DM fork is for…

quantity purchased

the right side of the DM fork is for…

quantity used in production

(DM fork) materials quantity/efficiency variance calculation

standard - half standard (quantity used)

are quantity and efficiency variance the same?

yes

journal entry for purchase of materials

(DR) DM inv. (AQ * SP)

(DR/CR) DM price variance

(CR) AP (AQ * AP)

journal entry for usage of materials

(DR) WIP inv.

(DR/CR) DM quantity variance

(CR) DM inventory (AQ * SP)

for the journal entries for purchase of materials & usage of materials, is the calculation for DM inventory the same (AQ * SP)?

no. purchases vs. usage

is unfavorable a debit or credit?

debit

is favorable a debit or credit?

credit

when evaluating DM variances, the manager will likely discuss DM price variance with…

the purchasing manager (they should be aware of purchasing deals/contracts)

when evaluating DM variances, the manager will likely discuss the DM quantity variance with…

the production supervisor (they should be aware of how much DM is being used in production)

what is the total DM variance if quantity purchased ≠ quantity used

(quantity used * actual price) - (quantity allowed x standard price)

AKA (AQ x AP) - (SQ * SP)

what is the total DM variance if quantity purchased = quantity used

price variance + quantity variance

with the forks, which way do you calculate the variances?

from L → R

(DL) rate variance

comparison of the actual cost of an input to the standard cost of an input

did we pay our employees more or less than expected?

(DL/VOH) efficiency variance

comparison of what we actually used to make product vs. what we should’ve used

did it take more or less time to make the product than expected?

how many journal entries are there for DL variances? why?

1, unlike DM (2). all DL labor cost incurred goes to WIP because you can’t save labor like DM (like w/ purchases entry).

is the DL/MOH fork bent?

no (b/c no purchases vs. usage; can’t save labor/MOH)

(DL/MOH fork) actual calculation

AH * AR

(DL/MOH fork) half standard calculation

AH * SR

(DL/MOH fork) standard calculation

SH * SR

what side of the fork is the labor/VOH rate variance on?

left

what side of the fork is the labor/VOH efficiency variance on?

right

DL variance journal entry

(DR) WIP Inv.

(DR/CR) Rate Variance

(DR/CR) Efficiency Variance

(CR) Wages Payable

for DL/VOH, do you make separate journal entries for the variances?

no

MOH & VOH are used…

interchangeably

(at least for me)

(DL/VOH) using actual, half standard, and standard allows us to break out differences due to…

rate & efficiency (# of hrs worked)

when evaluating DL variances, the manager will likely discuss the DL rate variance with…

HR & the production supervisor (bc they should be aware of the changes in wage rates of workers)

when evaluating DL variances, the manager will likely discuss the DL efficiency variance with…

the production supervisor (bc they should be aware of how long it takes workers to compelte jobs)

total DL variance

DL rate variance + DL efficiency variance

should a favorable efficiency variance be positive or negative?

negative; making more in shorter time

should a favorable rate variance be positive or negative?

negative; paying less than you thought

how do you know if something is worth it? (rate/efficiency variances)

look at the net of both variances. if mostly U, not worth it. if mostly F, worth it

VOH variances are very similar to…

DL variances

(VOH) rate variance

comparison of the actual cost of an input to the standard cost of an input

did our overhead cost more or less than expected? (ex. POHR)

VOH incurred = __

used

actual hrs for VOH refers to…

the allocation base

actual rate for VOH usually refers to…

POHR rate

journal entry for VOH variances

(DR) WIP Inv.

(DR/CR) Rate Variance

(DR/CR) Efficiency Variance

(CR) MOH applied

standard input ratio (DM)

amt of DM expected to be used to produce 1 unit of output

what should you use to compute standard DL hrs (SH)?

actual output

(DL/VOH) is a negative efficiency variance F or U?

F because you’re making more ($) with less hrs.

(DL/MOH) is a positive rate variance U or F?

U because you paid more($, rate) than expected