Professional Documents
Culture Documents
10-2
Massa, Inc.
Product: Pizza Sales April (Forecast): 1,500 pizzas Direct Material: cheese Standard Price per kg of cheese: $10/kg Standard Quantity per pizza: 0.4kg/pizza
10-3
Standard Costs
Standards are benchmarks or norms for measuring performance. Two types of standards are commonly used.
Quantity standards specify how much of an input should be used to make a product or provide a service. Cost (price) standards specify how much should be paid for each unit of the input.
10-4
Massa, Inc.
Product: Pizza Sales April (Forecast): 1,500 pizzas Direct Material: cheese Standard Price per kg of cheese: $10/kg Standard Quantity per pizza: 0.4kg/pizza April: 1,500 pizzas sold 750 kg of cheese. Direct Material cost: $6,750 1) More cheese per pizza 2) Cheese more expensive
10-5
Standard Cost Card Variable Production Cost A standard cost card for one unit of product might look like this:
A
Standard Quantity or Hours
3.0 lbs. 2.5 hours 2.5 hours
B
Standard Price or Rate
AxB
Standard Cost per Unit
12.00 35.00 7.50 54.50
Inputs
Direct materials Direct labor Variable mfg. overhead Total standard unit cost
10-6
Are standards the same as budgets? A budget is set for total costs.
A standard is a per unit cost. Standards are often used when preparing budgets.
10-7
Variance Analysis
Price Variance
Quantity Variance
10-8
Variance Analysis
Price Variance
Quantity Variance
10-9
Price Variance
Quantity Variance
10-10
Price Variance
Quantity Variance
Actual quantity is the amount of direct materials, direct labour, and variable manufacturing overhead actually used.
10-11
Price Variance
Quantity Variance
Standard quantity is the standard quantity allowed for the actual output of the period.
10-12
Price Variance
Quantity Variance
Actual price is the amount actually paid for the input used.
10-13
Price Variance
Quantity Variance
Standard price is the amount that should have been paid for the input used.
10-14
Price Variance
(AQ AP) (AQ SP) AQ (AP SP) AQ = Actual Quantity AP = Actual Price
Quantity Variance
(AQ SP) (SQ SP) SP x (AQ SQ) SP = Standard Price SQ = Standard Quantity
10-15
Quick Check
Hanson Inc. has the following direct material standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630.
10-16
Quick Check
Hansons material price variance (MPV) for the week was: a. $170 unfavourable. b. $170 favourable. c. $800 unfavourable. d. $800 favourable.
10-17
Quick Check
Hansons material quantity variance (MQV) for the week was: a. $170 unfavourable. b. $170 favourable. c. $800 unfavourable. d. $800 favourable.
10-18
Quick Check
Actual Quantity Actual Price 1,700 lbs. $3.90 per lb. = $6,630
Actual Quantity Standard Price 1,700 lbs. $4.00 per lb. = $ 6,800
Standard Quantity Standard Price 1,500 lbs. $4.00 per lb. = $6,000
10-19
Exhibit 10-1
Identify questions
Receive explanations
Begin
10-20
Material Variances
Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used?
The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used.
10-21
Hanson Inc. has the following material standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies.
10-22
10-23
Standard Quantity Standard Price 1,500 lbs. $4.00 per lb. = $6,000
10-24
Rate variance
Efficiency variance
(AH AR) (AH SR) AH (AR SR) AH = Actual Hours AR = Actual Rate
(AQ SP) (SQ SP) SP x (AQ SQ) SR = Standard Rate SH = Standard Hours
10-25
Quick Check
Hanson Inc. has the following direct labour standard to manufacture one Zippy:
1.5 standard hours per Zippy at $12.00 per direct labour hour
Last week, 1,550 direct labour hours were worked at a total labour cost of $18,910 to make 1,000 Zippies.
10-26
Quick Check
Hansons labour rate variance (LRV) for the week was: a. $310 unfavourable. b. $310 favourable. c. $300 unfavourable. d. $300 favourable.
10-27
Quick Check
Hansons labour efficiency variance (LEV) for the week was: a. $590 unfavourable. b. $590 favourable. c. $600 unfavourable. d. $600 favourable.
10-28
Quick Check
Actual Hours Actual Rate 1,550 hours $12.20 per hour = $18,910
Actual Hours Standard Rate 1,550 hours $12.00 per hour = $18,600
Standard Hours Standard Rate 1,500 hours $12.00 per hour = $18,000
10-29
10-30
Larger variances, in dollar amount or as a percentage of the standard, are investigated first.
10-31
Standard Costs
Deviations from standards deemed significant are brought to the attention of management, a practice known as management by exception.
Amount
Direct Labour
Manufacturing Overhead
10-32
Exhibit 10-9
Unfavourable Limit
8 9
Variance Measurements