1. Standard Costing System Chapter 4 Managerial Accounting Concepts and Empirical Evidence

2. Standard Costing Variances Standard Cost Variances Standard Cost Variances Price Quantity Rate Efficiency Spending Efficiency Budget Volume Material Variances Material Variances Overhead (Indirect Costs) Variances Overhead (Indirect Costs) Variances Labor Variances Labor Variances

3. 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

4. Data for Standard Cost Ren Corporation, Cutting Dept. Actuals u Number of desks produced4,800 u Sheets of plywood purchased5,200 u Sheets of plywood put into production4,824 u Direct labor hours worked9,500 u Plywood cost per sheet$ 21 u Labor cost per hour$ 16 u Indirect costs Variable$17,100 Fixed$ 4,900

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

6. 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 =$ 4,80

7. 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)9,600 (SQ)  $ 16 (SP)=$144,000 Efficiency Variance(2-3) Favorable=$ (1,500) 2 hrs Req. per desk * 4,800 desk = 9,600 standard req. hrs for the level of production achieved

8. 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)9,600 (SQ)  $ 1.50 (SP)=$14,400 Efficiency Variance(2-3) Favorable=$ (150)

9. 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)Standard Fixed overhead=$4,800 for the level of production achieved ($ 0.50 * 9,600) Volume Variance(2-3) unfavorable=$ 200