Standard Costs and Variances

Flashcards for reviewing standard costs and variances.

Quantity Standards

Specify how much of an input should be used to make a product or provide a service.

Price Standards

Specify how much should be paid for each unit of the input.

Standard Costs

Based on carefully predetermined amounts and used for planning materials, labor, and overhead requirements, representing the expected level of performance and serving as benchmarks for measuring performance.

Direct Materials Price Standards

Final, delivered cost of materials, net of discounts.

Direct Materials Quantity Standards

Summarized in a Bill of Materials and represent the amount of materials needed to meet production designs.

Standard Materials Cost

The standard price for one unit of material multiplied by the standard quantity of materials required for each unit of product.

Direct Labor Rate Standards

Often a single rate is used that reflects the mix of wages earned, determined by wage surveys or labor contracts.

Direct Labor Time Standards

Use time and motion studies for each labor operation, developed by production and manufacturing experts such as industrial engineers.

Standard Labor Cost

The standard rate for one hour of direct labor multiplied by the standard time required for each unit of product.

Variable Overhead Rate Standard

The variable portion of the predetermined overhead rate.

Variable Overhead Activity Standard

The units of activity in the base used to apply the predetermined overhead (e.g., direct labor hours or machine hours).

Standard Variable Overhead Cost

The standard variable overhead rate multiplied by the standard number of activity units for each unit of product.

Variance Analysis

Involves preparing a standard cost performance report and comparing actual costs with standard costs to identify explanations and possible causes for variances.

Cost Variance

The difference between actual and standard cost; unfavorable if actual cost > standard cost, favorable if actual cost < standard cost.

Materials Price Variance (MPV)

AQ(AP – SP), where AQ is actual quantity, AP is actual price, and SP is standard price.

Materials Quantity Variance (MQV)

SP(AQ – SQ), where SP is standard price, AQ is actual quantity, and SQ is standard quantity.

Labor Rate Variance (LRV)

AH (AR – SR), where AH is actual hours, AR is actual rate, and SR is standard rate.

Labor Efficiency Variance (LEV)

SR (AH – SH), where SR is standard rate, AH is actual hours, and SH is standard hours.

Variable Manufacturing Overhead Rate Variance (VMRV)

AH (AR – SR), where AH is actual hours, AR is actual rate, and SR is standard rate.

Variable Manufacturing Overhead Efficiency Variance (VMEV)

SR (AH – SH), where SR is standard rate, AH is actual hours, and SH is standard hours.