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Strategic Business Analysis
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23 views55 pagesSba Standard Cost
Roque
Strategic Business Analysis
Management Advisory Services
Uploaded by
cmuvpexternal.nfjpia2324Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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/ 55
CHAPTER 6 :
'
STANDARD COST
VARIANCE ANALYSIS ~ Res
re
ee }
___ part a= |
310_
STANDARD
of acceptable performance established by
ride in making economic decisions
JANTITY. STANDARDS - indicate the quantity of raw materials: or
= jabor time required: to produce a unit of product or to provide
a me f
management as @ Bt
services
cost STANDARDS - indicate what the
“standards (materials quantity and labor time) should be.
USERS OF STANDARD costs
manufacturing firms
service firms
non-profit orga!
1.
2.
4, nizations
VARIANCE
- the p It
ribed either when actual cost.is/
“Jess than standard cost) or (when actual cost is
should be d
greater than standard cost).
STANDARD COSTING CONTROL LOOP
Establish standards
Measure actual performance
Compare actual performance
Analyze the variance
Investigate the variance!
yake corrective action when. nee
revision of standards.
MANAGEMENT BY EXCEPTION
favorable, terial oF sigma ed ;
wwhether favorable or wn!
with standard
whe Ne
that must be investigated
ded. This may include
See gl at,
COST ACCOUNTING SYSTEMS
TYPES OF STANDARDS
IDEAL STANDARDS
7 attainable only under the best circumstances. Also called
they require
no allowance for machine breakdown,
work interruption, wastages, etc., 100% of the time.
2. FRATICN SPENDS (SO CALEY SET ene ae
They allow for normal
“machine downtime and employee rest-periods, normal
wastages, and work interruptions. These standards are
> Practical standards are the ones normally used for
product costing and cash budgeting purposes.
MATERIALS STANDARDS
‘GIANDARD-PRIGE-PER-UNIT - should reflect the final, delivered cost of
ials, ‘i 5 Metehabiaal
handling costs.
STANDARD -QUANTITY-PER-UNIF - should reflect the units of materials:
including
s well as
allowances for unavoidable wastages, spoilage,
other normal inefficiencies.
encereredorgrerh = Standard Quantity, Standard Price per |
of Product per Unit of Product. Unit of Materials |
DIRECT LABOR STANDARDS
STANDARD RATE PER HOUR ~ should include the wage ¢ benef
and other labor costs, Ges: Tringe benetits,
‘STANDARD TIME (HOURS) PER UNIT - the:
i amount of la .
of hours) required to produc of labor time (or number
© each unit of product, including _ :
o
(3 cart OUNDATION: ANI |ENT. ACCOUNTING
es for employee rest. periods, personal needs of
Seen and even normal machine downtime.
Labs Cost os ‘standard Time Standard Labor
Standart of Product = (Hours) per Unit“ Rate per Hour |
ted
VARIABLE MANUFACTU! RING OVERHEAD STANDARDS
FIXED MANUFACTURING OVERHEAD STANDARDS
‘figures. To set the standard rate for fixed overhead, the total
fixed overhead costs is
The standard time for overhead is usually expressed in terms of
ieee " 2 :
STANDARDS AND BUDGETS
Both-stendards-andbudgets are predetermined amounts. However,
a standard is a-unit amount, whereas adbudget is atotalbamount:
TOTAL BUDGETED COSTS AND TOTAL STANDARD COSTS
TOTAL BUDGETED costs - the cost that should be incurred (0!
[Totat Bud Budgeted Cost = Budgeted Produc ‘tion x Standard ¢ Cost ber Unit |
Tor
‘AL STANDARD COSTS - the cost that should have been incurred !0"
“ Actual Production» x Standard Cost Ber | Unit
\_Total Standard Cost =
BL
SY
Ex
Cor
sta
inet hapter
Example:
To produce a unit of product, 3 pieces of materials a
standard price per piece of materials is P2. eee
Budgeted production for the month of August was 1,000
production for such month was 1,100 units. Uns. Actual
Standard Cost per _ Standard Quantity Standard Price
Unit of Product per Unit per Piece
= 3 pieces x P2
= P6 per unit of product
Total Budgeted _ Budgeted Standard Cost per
Materials Cost Production Unit of Product
= 1,000 units x P6 per unit
= 6,000 - the amount that should be
incurred for the budgeted
production of 1,000 units
Total Standard _ Actual ¥ Standard Cost per
Materials Cost ~~ Production Unit of Product
= 1,100 units x P6 per unit
= 6,600 - the amount that should have
been incurred for the actual
production of 1,100 units
BUDGET VARIANCE AND STANDARD COST VARIANCE
BUDGET VARIANCE = Actual-CostBudgeted Gost
STANDARD COST VARIANCE = Actual Cost ~ Standard Cost
Example:
Consider previous example where total budgeted cost is P6,000 and total
standard cost is 6,600, Assume that the actual cost of materials
incurred for the actual production of 1,100 units in August was P5,800.
The variances are:
Actual cost P5,800
Less budgeted cost
6,000
Budget variance P__200 favorable seein: sae
:
=.
PART 2- FOUNDATIONS OF MANAGEMENT ACCOUNTING
314
Actual cost P5,800
Less standard cost
Standard cost variance P_800 unfavorable
ses, il 1s better to compute and analyze thy
nee, Here, actual cost is compared with the
pertain to actual production. :
For control purp'
standard cost vari
standard cost: both cc
In the budget variance, actual cost is compared with the budgete
cost. The two costs pertain to different units of production: thideees
cost is for budgeted production, while actual cost is for =
production. It is not wise, therefore, to compare the two costs. 7
VARIANCE ANALYSIS
labor,
In matcrials and variable factory overhead costs, the
Efficiency Variance or Quantity er Time Variance, and
Spending Variance or Price or Rate Variance
VARIANCE COMPUTATION AND ANALYSIS
MATERIALS:
“WARIRNCE COMPUTATIONS»
Actual Materials Cost - Actual Quantity x Actual Price
Less Standard Materials Cost - Standard Quantity x Stan
Price; or
- Actual Production x standard
Materials Cost per Unit
Materials Cost Variance
ANALYSIS:
Spending or Price Varianee: Actual quantity X Actual price
tanclard pass
Actual quantity 8 St
Spending or Price Varlanes
Alternative Formula
Spending or Actual _ Standard Actual
‘rice Variance © rice 7 Price) ® Quantity
or = Difference in Prices x. Actual Quantity
wQC
varus
a a a
4
rd
rd
Chapter 6-Standerd Cost Variance Analysis 315
Efficiency or Quantity Variance:
Actual quantity x Standard price
Less Standard quantity x Standard price
Efficiency or Quantity Variance
Alternative Formula:
icy Or = ( Actual _ Standard Standard
Quantity ~ Quantity ) x Price
= Difference in Quantities x Standard Price
DIRECT LABOR:
VARIANCE COMPUTATION:
Actual Labor Cost - Actual Time x Actual Rate
s wd Labor Cost - Standard Time x Standard Rate;
or
- Actual Production x Standard
Labor Cost per Unit
Labor. Cost Variance
ANALYSIS:
Spending or. Rate Variance: Actual tim: ecb rate
di re
Spending or Ra’
Alternative Formula:
Spending or _ Actual _ Standard ) . Actual
Rate Variance =X Rate Rate ‘Time
or = Difference in Rate X Actual Tre
Efficiency or Time Variance:
‘Actual time x Standard rate
Less Standard time x Standard rate
Efficiency or Time Vanince
Alternative Formula:
Efficiency or | ( Actual _ Standard ) | x . Standard
‘Time Variance Time rime Rate
or = Difference in Time x Standard Rate ina
ie ee)
a
ee
~~
*,
SSS
IT u
316 PART.2- FOUNDATI
VARIABLE FACTORY OVERHEAD:
factory overhead variance are
Computation and analysis of variable i
the same as in direct labor cost variance,
used are the variable factory overhead rates.
except that the rates to be
VARIANCE COMPUTATION:
Actual Variable Factory Overhead*
Less Standard Variable Factory. Overhead**
Variable Factory Overhead Variance
* Actual Tire x Actual Variable Factory Overhead Rate
** Standard Time x Standard Variable Factory Overhead Rate
Anasis: Variable Overhead Spending or Rate Variance and
Variable Overhead Efficiency or Time Variance
FIXED FACTORY OVERHEAD:
(VARIANCE COMPUTATION:
Actual Fixed Factory Overhead.
Less Standard Fixed Factory Overhead*
Fixed Overhead Variance
* Standard Time x Standard Fixed Factory Overhead Rate
ANALYSIS:
fara ve angel Actual Fixed _ Budgeted Fixed
Variance Overhead Overhead
Budgeted Fixed Overhead ~
Standard Fixed Overhead
u
TOTAL FACTORY OVERHEAD VARIANCE ANALYSIS AND COMPUTATION:
VARIANCE COMPUTATION:
Actual Factory Overhead
Standard Factory Overhead*
ory Overhead Variance ag
Standard Time x Standard Fixed Factory Overhead Rate
i i qa0av
ANALYSIS.
1 varie
spending
orate
variance
variable
eficency |
oxtime
variance
Fixed
spending |
orbusget |
variance
t
|
Volume
or
capacity
variance |
|
3-WAY ANALYSIS:
4. Spending variance
Vanable spending
Fixed spending
2. Eticiency vatiance
Vanable efficiency
‘Volume or Capacity variance
‘Spending variance
‘Actual factory overhead *
Less budget allowed for
‘actual hours!
Budgeted fixed overhead x
Variable overhead (Actual
nous xstd.varableraie XE
Efficiency variance:
| Budget alowed for actual
hours xx
Less budget alowed for
standard hours
Budgeted fixed overhead x
Variable overhead (S10. hours
sid, variable rte we
Volume variance:
Budget alowed for std. hows **
Less Standard factory
Ve
ALTERNATIVE COM
ANALYSIS
‘onwotable vararce
Vato scendng
arabe eicancy
| Fived sending
| Volume or Capacity variance
TATIONS
Controllable variance
‘Actual factory overhead
Less budget alowed for
standard hous
Budgeted fixed
covernead *
Variable overhead
(td. hours x sit
variable rate Pa
Volume variance:
Budget allowed for standard
| hours
| Less Standard factory
| overhead
| Total overhead variance
ait. 318 _part.2- FOU OF MANAG:
Mustrative Example: =
A. company produces a single product that has the following standard cont
Materials 5 pieces at P4 per piece ° 20 Steamers
Labor 3 hours at P10 per hour 30 - $QxSP
variable overhead 3 hours at P15 per hour “6 Efficienc
Fixed overhead 3 hours at PS per hour 45
Total manufacturing cost variance Pilg spendin
it The total budgeted fixed overhead is P15,000. This is for the budgeted production (the Toate
normal capacity level) of 1,000 units requiring total budgeted time of 3,000 hours,
here:
During the period, the company produced 1,100 units and incurred the following costs: 2
Materials 5,600 pieces at P3.80 per piece P 21,280
Labor 3,250 hours at P11 per hour 35,750
Variable overhead 3,250 hours at P14.50 per hour 47,125
Fixed overhead _ 16,000
Total Pi20,155 COMPU
COMPUTATION AND ANALYSIS OF THE VARIANCES: =
: Actual manufacturing costs P120,155 _—
} Less standard manufacturing costs* 121,000 y
: Total manufacturing cost variance P__845 F ma
*1,100 units x P110 av
— at
> For purposes of analysis, it is best if the total favorable Spe
5 variance of P845 is broken down into the cost elements Eficies
(materials, labor, variable overhead, and fixed overhead) : aT;
i MATERIALS na - 7
COMPUTATION: Quanfiy Price Total -~—wnere =
[AP = actual production
' Acual 5,600 P30 P21,280 SQiu = standard quantity per unit
Less standard 0 = difference in quantives
; AP x SQWu(1,100%5) 6,500 4.00 22,000 DP = diference in pies
Variance 100U PO.20F P_720F U = untayorable
} rol “OF —— F = favorable
dQ oP. h
, ANALYSIS: 7
Spending of Price Variance Spending or
. AQx AP (5,600xP3.80) P21,280 OR Pree Vanance oes |
F = AQx SP (5,600xP4.00) — _22,400 = P0.20F x 5,600 |
Spending or price variance P_1,120 F Ie |
8
Chapter 6 - Standard Cost Variance Analysis == 319)
Efficiency or Quantity Variance:
‘AQ x SP (5,600 x P4.00) 22,400 OR Efficiency or “
~ $Qx SP (5,500 x P4.00) 22,000 Quantity Variance Ox SP
Efficiency of quantity variance P__400 U = 100UxP4
= R400 U
Spending/Price variance P1120 F
Efficiency/Quantity variance __ 400 U
Total materials cost variance R_220F
where: AQ = actual quantity
AP = actual price
SQ = total standard quantity
SP = standard price
DIRECT LABOR
COMPUTATION: Quantity Price Total
Actual 3,250 P11.00 35,750
Less standard - AP x ST/u (1,100 x 3) 3,300 10.00 33,000
Variance _50F P400U P2750U
OT DOR
ANALYSIS:
Spending or Rate Variance: Spendingor _ pry AT
AT x AR (3,250 x P11.00) 35,750 OR Rate Variance
~ AT x SR (3,250 x P10.00) 32,500 = P4,00F x 3,250
Spending or price variance P_3,250U = P3,250U
Efficiency or Time Variance:
AT x SR (3,250xP10.00) P3200 OR _Elciencyor_ = = oT ysR
~ STxSR(3,300xP10.00) — _33,000 Time Variance
Efficiency of rate variance ~P__500F
Spending/Rate variance
Efficiency/Time variance 500 F
Total labor cost variance P2,750 U
where: ST/u= standard time per unit — SR = standard rate
AT = actual time DT = difference in time
AR = actual rate DR = difference in rate 5 oF MANAGE!
iat nas the following standard costs:
example:
erative Ex! roduct th
Must ni oes single P' ra per plc Aen
compa! 5 pieces @" . a
materials 3 hours at P10 Pe: tout a
Labor 4 sure at PLS per hou!
variable overne® 3 fours at PS per hour _15
Ye
toa er nufacturing cost variance eulo
budgeted pis,000. This is for the budgeted production (the
Tre tt hye oS P15 ng total usted te OF 3,000 Hous.
normal capacty level) of 1,
r
purng the period, the company produced 1,100 units and incurred the following costs:
rials 5,600 pieces at P3.80 per piece P 21,280
tater 31250 hours at Pi per hour 35,750
Laban overhead 3,250 hours at 14.50 per hour ts
Fixed overhead 000
Toa pi20,155
COMPUTATION AND ANALYSIS OF THE VARIANCES:
‘Actual manufacturing costs P120,155
Less standard manufacturing costs* _ 121,000
P__845 F
Total manufacturing cost variance
1,100 units x P110
it is best if the total favorable
© the cost elements
ad)
> For purposes of analysis,
variance of P845 is broken down int
(materials, labor, variable overhead, and fixed overhe:
MATERIALS
COMPUTATION: Quantity Price Total where
ta gg PAD POLINA
AP x SQI DQ = difference in quantities
ae Bate pl DP = difference in prices
wu PO20F P. U = unfavorable
ANALYSIS: Q oP F = favorable
Soenting or Pica Variance, —
XAP (5,600xP3.80) P21. pending or =
= AOxSP (EA00xPAOO) gang OR P68 Variance ae
‘Spending or price variance P.4.120F = PO.20F x 5,600
1,120 F
COW
le
Vi
ez
g
1
Ef!
Te
wl ble
nts
unit
chapter 6 Standard Gost Variance Analyals 319
wncy of Quantity Variance:
eee 6.600 x P400) 22,400 OR Efficiency or = Day sp
_ $0 x SP (5,500 x PA.00) 22,000 Quantity Variance
Efficiency of quantity variance P__400 U 00UxP4
P400 U
spending/Price variance P1,120F
Efficiency /Quantity variance ~ "400 U
P_Z20F
Total materials cost variance
where: AQ=actual quantity
AP = actual price
$Q = total standard quantity
SP = standard price
DIRECT LABOR
COMPUTATION: Quantity Price Total
Actual 3,250 © -P11.00——P35,750
Less standard- AP x ST/u(1,100x3) 3,300 40.00 33,000
Variance _50F P400U P2750U
or DR
ANALYSIS:
‘Spending or Rate Variance: .
nding or Rate Variance: Spending oF = pp at
AT x AR (3,250 x P11.00)
35,750 OR Rate Variance
1.00 F x 3,250
— ATxSR (3.250% 10.00) _32,500
Spending or price variance 3,250 U 3,250 U
Efficiency or Time Variance:
‘AT x SR (3,250xP10.00) P32,500 OR Efficiencyor = - ory sR
= ST xSR(3,300xP10.00) _33,000 Time Variance
Efficiency of rate variance P_500F = SOF xP10
: = PSOQF
Spending/Rate variance P3,250 U
Efficiency/Time variance 500 F
2,750 U
Total labor cost variance
where: $T/u = standard time per unit
AT = actual time
actual rate
SR = standard rate
lifterence in time
DR = difference in rate 0 PART 2 - FOUNDATIONS OF MANAGEMENT ACCOUNTIN,
320 Par MENT ACCOUNTING
VARIABL FACTORY OVERH
COMPUTATION: Quantily Price Total
Actual 3,250 P1450 PAT .195
Less standard (1,100 x 3) 3,300 15.00 49,500,
Variance 50F POSOF P2375F
oT OR ads
ANALYSIS:
Spending or Rate Variance: Spending or _
AT x AR (3,250x P1450) P47,125 OR Rate Variance ~ OR XAT
~ ATx SR (3,250 xP15.00) 48,750 = POSOF x3,250
Spending or price variance P_1,625 F = PL625F
Efficiency or Time Variance: :
AT x SR (3,250%P15.00) 48,750 OR Efciencyor = _ yt yop
~ ST xSR(3,300xP15.00) _49.500 Time Variance
Efficiency of rate variance 50 F = SOF xP15
= = PISOF
Spending/Rate variance F
Efficiency/Time variance 50 F
Toial labor cost variance 24375 F
FIXED FACTORY OVERHEAD
COMPUTATION:
Actual fixed overhead 16,000
Less standard fixed overhead ST x SFxR (3,300xP5) — _16,500
Fixed overhead variance P_ 500 F
ANALYSIS:
Fixed Spending or Budget Variance:
Actual fixed overhead P16,000
Less budgeted fixed overhead 15,000 P1,000U
Volume or Capacity Variance:
Budgeted fixed overhead P15,000
Less standard fixed overhead 16,500 _1.S00F
Total fixed overhead variance P_500F
‘COMPU
Actua! fa
Less sta
Total fac
ANALY:
FOUR-Y
Efficiency
Bud
Less
Volume ve
Budg
Less
TOTAL O\ OF
0 U
chanter& , - Standard Cost Variance Analysis __ 821
TOTAL FACTORY OVERHEA
COMPUTATION:
actual factory overnead (AFOH): AVOH x AFXOH (P47,126 + P16,000) P83. 125
Less standard factory ‘overhead (SFOH): ST x SR (3,300 x P20) 66,000
Total factory overhead variance p2B75F
ANALYSIS:
FOUR-WAY ANALYSIS: Variable spending P1625 F
Variable efficiency 750F
Fixed spending 4,000 U
Volume or capacity 4,500 F
Total overhead variance P2g75F
THREE-WAY ANALYSIS:
Spending variance:
Variable spending P1625 F
Fixed spending 4,000 P 625F
Efficiency variance (the variable efficiency variance) 750F
Volume varianoe 1,500F
TOTAL OVERHEAD VARIANCE P2875 F
OR
fing variance.
Variable Actual factory overhead 63,125
Less budget allowed for actual hours:
Budgeted fixed overhead 15,000
Variable ~ AT x SVR (3,250 x P15) 43,750 63,750 P 625F
Efficiency variance
Budget allowed for actual hours 63,750
Less budget allowed for standard hhours.
Budgeted fixed overhead P15,000
Variable ~ ST x SVR (3,300 x P15) 00
Volune variance’
Budget allowed for standard hours
Less standard factory overhead: ST x SR (3,300 x P20)
TOTAL OVERHEAD VARIANCE }
TWO.WAY ANALYSIS:
Controllable variance. 1,625 F
‘Variable spending 750 F
Vana cee? 4,000U P1,375F
i 4.500F
Volume varianoe
TOTAL OVERHEAD VARIANCE PAsiSr
Controllable variance. P63.125
Actual factory overhead
Less budget allowed for standard hours
Budgeted fixed overhead 15,000
Variable - ST x SVR (3,300 x P15) 49,500 64,500 P1375F
Volume variance:
‘Budget allowed for ‘standard hours 64,500
rece standard factory overhead: ST x SR (3,300 x P20) 66,000 1.500
P2g75 F
TOTAL OVERHEAD VARIANCE.
MATERIALS PRICE, MIX, AND YIELD VARIANCE ANALYSIS:
When the production process involves combining or mixing several
materials in varying. proportions, the 3-way analysis (Price, Mix, and
Yield Variance Analysis) is used.
VARIANCE COMPUTATION: - Actual Materials Costs*
Less Standar Materials Cost**
Materials Cost Variance
“a te total actual cost of'the several materials used
actual production x average standard output cost
ANALYSIS:
Price variance
ice = Difference in prices x actual quantity
(computed for ¢
each type als, ’
heuer ieee ype of materials, then summarized to 8°"
Mixvariance: ‘Total actual
Less total ac
auspitien at standard prices
el ee ee oe input at average standard input cost
eas'ieen ae aut at average standard input cost
Cost (actual output x ave. std. output cos"!
chapter $-§
iMustrative |
A company |
For a 100-kih
1
COMPUTATIO
ASIC (
quant
input
ASIC
2. YIELD
stand
Ailos.
and th
Yield
ASC NNTING
375 F
500 F
875 F
, several
Mix, and
ed to get
inpul cost
1 cost
uput cost)
spyoie stants onal Variance, praia ____923
nustrative Example
mmpany combines three types of materials to produce its product.
Ari 100-kilo batch, the standard cost for materials are as “allows:
standard Quantity Standard price Total
material A 60 kilos Ps 300
B 36 kilos 4 144
c 24 kilos 3 _R
Total 12Q kilos PS16
During August, the company produced 200 batches or, 20,000 kilos of its
product. Materials used for this production were:
Quantity Price Total
Material A 12,600 kgs. P4.80 P 60,480
B 7,300 4.10 29,930
Cc 4,700 3.40 15,980
Total 24,600 kgs. P106,390
COMPUTATION:
1. ASIC (AVERAGE STANDARD INPUT CosT). The total standard input
quantity is 120 kilos, costing P3516. The average standard
input cost (ASIC) is:
‘otal Standard Input Cost P516 ,
sic =~ - [otal Standard Input Co P56
ASIC= ~Fofal Standard input Quantity 120 kgs. 24.3 per kilo
1 YIELD % and ASOC (AVERAGE STANDARD OuTPUT Cost). Out of the total
standard input of 120 kilos, the company produces (yields) 100
kilos. ‘The yield % (standard output from the standard input)
‘and the average standard output cost (ASOC) are:
Standard Output Cost, _100 kgs.
Yield % = Ziandad input Quantiiy ~~ —120kgs, ~ S89%
ASOC = Total Standard Input Cost ~ _P516
“ “otal Standard Output Quantiy ~~ 109 * BRAS per kilo =
ouNDATIONS OF MANAGEMENT AGCOUNTIyg }
324 PART 2-F
chapter
TION OF THE TOTAL VARIANCE:
comPuTAT 106,390 VIELD VARI
Actual matenals cost 0c (20, 000 x P5.16) 403.2
2 1 - Actual output x AS (20, 103,200 Total actual
Less standard materials COS! elipy soe
Variance veld varian
_. Actual Standard Difference Actual . Price
PRICE VARIANCE price _ Price. _ Quantity Variance ALTERNA
engi 480 ~~ PS.00 x 12,600 = P2520F Actual outp
— 410 - 4.00 x 7200 © “7200 Less stand
c 340-300 = x 4700 = _1,880U ___ Toll
P ou Difference
Total Price Variance PU
