Variance Analysis and Standard Costing

These flashcards cover key concepts related to variance analysis, standard costing, and the differences between absorption and variable costing.

Variance Analysis

The process of evaluating the differences between planned financial outcomes and actual financial outcomes.

Sales Activity Variance

The difference between the budgeted sales revenue and the revenue expected from the actual sales volume.

Master Budget Variance

The total difference between the actual results and the budgeted results, consisting of two components: the flexible budget variance and the sales activity variance.

Direct Materials Variance

The difference between the actual cost of direct materials and the standard cost allowed for the actual production.

Direct Labor Variance

The difference between the actual labor costs incurred and the standard labor costs allowed for the actual production.

Variable MOH Variance

The difference between actual variable manufacturing overhead incurred and the standard variable overhead allowed for the actual production.

Fixed MOH Variance

The difference between actual fixed manufacturing overhead incurred and the budgeted fixed manufacturing overhead.

Absorption Costing

A method where all manufacturing costs, including fixed and variable, are included in the cost of a product.

Variable Costing

A costing method that includes only variable manufacturing costs in product costs.

Operating Income under Absorption Costing

Can increase if more units are produced than sold, as fixed manufacturing costs are spread over more units.

Operating Income under Variable Costing

Remains unaffected by the number of units produced since all fixed costs are expensed in the period incurred.

Per Unit Product Cost under Absorption Costing

Calculated by adding all manufacturing costs (fixed and variable) and dividing by the total number of units produced.

Per Unit Product Cost under Variable Costing

Calculated by only including variable manufacturing costs and dividing by the total number of units produced.

Fixed Manufacturing Overhead Volume Variance

The difference between the budgeted fixed manufacturing overhead and the applied fixed manufacturing overhead based on actual production levels.