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StratCost - Variance Analysis-1

This document discusses variance analysis for strategic cost management. It defines price and efficiency variances for operational costs. It also defines material price, material quantity, labor rate, and labor efficiency variances for direct costs. For overhead costs, it defines variable and fixed spending variances as well as variable and volume efficiency variances. It provides examples of calculating these variances using data from sample companies.

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Steven consuelo
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133 views3 pages

StratCost - Variance Analysis-1

This document discusses variance analysis for strategic cost management. It defines price and efficiency variances for operational costs. It also defines material price, material quantity, labor rate, and labor efficiency variances for direct costs. For overhead costs, it defines variable and fixed spending variances as well as variable and volume efficiency variances. It provides examples of calculating these variances using data from sample companies.

Uploaded by

Steven consuelo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STRATEGIC COST MANAGEMENT

VARIANCE ANALYSIS

1. Two components of Operational Variance


Price Variance Actual unit price of INPUT minus Standard unit
price of Input multiply by ACTUAL quantity of
INPUT.
Efficiency Variance Actual quantity of INPUT minus Standard quantity
of INPUT multiply by Standard Unit Price of
INPUT

2. Direct Material Variance


Material Price Variance Actual Price P XXX
Less: Std Price XXX
Unfavorable (Fav) P XXX
Multiply by ACTUAL Qty PURCHASED XXX
Unfavorable (Fav) PXXX

** Unfavorable means that you acquired a unit at


a price more than your expected price.
Material Quantity Variance Actual Quantity P XXX
Less: Std Quantity XXX
Unfavorable (Fav) P XXX
Multiply by STD Price XXX
Unfavorable (Fav) PXXX

** Unfavorable means that you acquired units at


a quantity more than your expected quantity.

3. Direct Labor Variance


Labor Rate Variance Actual Labor Rate P XXX
Less: Std Labor Rate XXX
Unfavorable (Fav) P XXX
Multiply by ACTUAL HRS XXX
Unfavorable (Fav) PXXX

** Unfavorable means that you paid a laborer at


a rate more than your expected hourly rate.
Labor Efficiency Variance Actual Hours P XXX
Less: Std Hours XXX
Unfavorable (Fav) P XXX
Multiply by STD Labor Rate XXX
Unfavorable (Fav) PXXX

** Unfavorable means that you spent hours more


than your expected number hours.

4. Factory Overhead (FOH) Variance - VARIABLE


Variable Spending Variance Actual VarOH PXXX
Less: (Actual hrs x STD VOH Rate ) XXX
Unfavorable (Fav) PXXX

Variable Efficiency Variance Actual Hours P XXX


Less: Std Hours XXX
Unfavorable (Fav) P XXX
Multiply by STD VAR Labor Rate XXX
Unfavorable (Fav) PXXX
5. Factory Overhead (FOH) Variance - FIXED
Budget Variance Actual FixedOH PXXX
Less: Budgeted FxOH @ Normal Capacity XXX
Unfavorable (Fav) PXXX

Volume or capacity Variance Budgeted FxOH @ Normal Capacity PXXX


Less: Applied FxOH @ Normal Capacity XXX
Unfavorable (Fav) PXXX

Multiple Choice Exercise Questions (Answer Keys)

Quarantine Corporation manufactures industrial-sized water coolers and uses budgeted machine-hours to allocate variable
manufacturing overhead. The following information pertains to the company’s manufacturing overhead data.

Budgeted output units 15,000 units


Budgeted machine hours 5,000 units
Budgeted variable manufacturing
Overhead costs for 15,000 units P 161,250

Actual output units produced 22,000 hours


Actual machine-hours used 7,200 hours
Actual variable manufacturing overhead costs P 242,000

1. What is the budgeted variable overhead cost rate per output unit?
a. P 10.75 c. P 32.25
b. P 11.00 d. P 48.40

2. What is the flexible budget amount for variable manufacturing overhead?


a. P 165,000 c. P 242,000
b. P 236,500 d. P 252,500

3. What is the flexible budget variance for variable manufacturing overhead?


a. P 5,500 favorable c. P 4,300 favorable
b. P 5,500 Unfavorable d. P 4,300 Unfavorable

4. Variable manufacturing overhead costs were ________ for actual output.


a. Higher than expected c. Lower than expected
b. The same as expected d. Just an average costs

Kobe Corporation manufactured 1,500 chairs during June. The following variable overhead data pertain to June:

Budgeted variable overhead cost per unit P12.00


Actual variable manufacturing overhead cost P 16,800
Flexible-budget amount for variable manufacturing overhead P 18,000
Variable manufacturing overhead efficiency variance P 360 unfavorable

1. What is the variable overhead flexible-budget variance?


a. P1,200 Favorable c. P 1,560 Fav
b. P 360 Unfav d. P 1,200 Unfav
2. What is the variable overhead spending variance?
a. P 840 U b. P1,200 F c. P 1,200 U d. P 1,560 F
GBS Corp. manufactured 100,000 buckets during February. The overhead cost-allocation base is P 5.00 per machine-hour. The
following variable overhead data pertain to February.

Actual Budgeted
Production 100,000 units 100,000 units
Machine-hours 9,800 hours 10,000 hours
Variable OH cost per
Machine hour P 5.25 P5.00

1. What is the actual variable overhead cost?


a. P 49,000 c. P 51,450
b. P 50,000 d. P 50,375

2. What is the flexible-budget amount?


a. P 49,000 c. P 51,450
b. P 50,000 d. P 54,380

3. What is the variable overhead spending variance?


a. P 1,000 Fav c. P 2,450 UnFav
b. P 1,450 UnFav d. P 1,750 Fav

4. What is the variable overhead efficiency variance?


a. P 1,000 Fav c. P 2,450 UnFav
b. P 1,450 UnFav d. P 1,750 Fav

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