ACTIVITY-BASED, REPORTERS:

PAULO ADAOAG

ABSORPTION AND
DHINA LOREIGN
MAMARADLO
SHARMAINE

VARIABLE
PASCUAL
FRANCESCA
MENDOZA

COSTING MA. DEE

VILLANUEVA
 PRODUCT
COSTING
Determining the cost of the products

1 Activity-Based Costing
(ABC)
2 AbsorptionCosting
and Variable
 PRODUCT
COSTING

PRODUCT DIRECT DIRECT MANUFACTURING

OVERHEAD
COST MATERIAL LABOR
 ACTIVITY-BASED
MANAGEMENT
to improve operations
All actions that
managers take
to reduce
cost
Focuses on the activities incurred
during the production

Implemented together with TQM and

Target Costing
 CONCEPTS
COVERED
ACTIVITY COST DRIVER
ANALYSIS ANALYSIS

CONTINUOUS OPERATIONAL PERFORMANCE

IMPROVEMENT CONTROL EVALUATION

BUSINESS PROCESS ACTIVITY-BASED

REENGINEERING COSTING
IMPORTANT QUESTIONS

1 What activities should the

company perform?

2 How much does it cost to

perform each activity?

3 Does the activity add

value to the customer?
 Increase the worth of a product or
VALUE-ADDED service to a customer

Increase the time spent on the

product or service
NONVALUE-ADDED
Necessary and essential
VALUE-ADDED NONVALUE-ADDED

Assembly Storage

Finishing Inspection

Packaging Machinery Set-Up

 MANUFACTURING CYCLE
EFFICIENCY IN ABM
total time spent on value-added
activities total cycle time

total service time total cycle time

total cycle time processing time move time wait time inspection time
MANUFACTURING CYCLE
EFFICIENCY IN ABM
A product is like a magnet

Willie Sutton Rule

“Where the greater cost is, there we should

eliminate and minimize”
 ILLUSTRATIVE EXAMPLE
ACTIVITY AVERAGE TIME Value-Added
Receiving 2
Nonvalue-Added
Quality 1

Storage 12.5

Move to Production 0.5

 
MCE
Waiting for Use 3
ASSEMBLY
Machinery Set-Up 0.5

Assembly 3
 
MCE
Move to Inspection 0.5

Move to Finishing 0.5

 
MCE
 ILLUSTRATIVE EXAMPLE
ACTIVITY AVERAGE TIME
Value-Added
Receiving 0.5

Move to Production 0.5 Nonvalue-Added

Waiting for Use 8.5

Machinery Set-Up 0.5

 
MCE
Finishing 2

Inspection 0.5
FINISHING
Packaging 0.5  
MCE
Move to Dockside 0.5

Storage 1.5

Ship to Customer 2.5

 
MCE
 NONVALUE-ADDED
ACTIVITIES

1 SYSTEMIC FACTORS

2 PHYSICAL FACTORS

3 HUMAN FACTORS
 ACTIVITY-BASED
COSTING
Study of Cooper and
Kaplan
TRADITIONAL
COSTING METHOD
Single Indirect-Cost Pool
System
single predetermined rate based
on one cost driver to assign
overhead
THREE-STEP APPLICATION

1 TOTAL BUDGETED PLANT-

ALLOCATION BASE

2 SINGLE PLANT-WIDE
OVERHEAD RATE

3FOR
OVERHEAD RATE
EACH PRODUCT
 ILLUSTRATIVE
EXAMPLE
A company produces two products namely, Product X and Product
Y. The budgeted factory overhead is Php 2,450,000.00. The firm
produces 30,000 and 5,000 units of X and Y, respectively. Both
products require one hour of direct labor to complete, costing Php
34.00 per hour. Direct materials per unit costs Php 50.00 and Php
30.00 for X and Y, respectively.

Required:
A. Compute for the overhead cost allocated for a unit of
Product X and Y.
B. Compute for the unit cost.
1 DETERMINE THE TOTAL BUDGETED
PLANT-ALLOCATION BASE
DIRECT LABOR
ANNUAL TOTAL DIRECT
PRODUCT HOURS PER
PRODUCTION LABOR HOURS
UNIT

X 30,000 Units 1hr per unit 30,000 hrs

Y 5,000 Units 1hr per unit 5,000 hrs

Plant-Wide Allocation Base 35,000 hrs

2 DETERMINE THE SINGLE
PLANT-WIDE OH RATE

OH rate
 

OH rate
 

OH Rate = Php 70 per direct labor

hour
3 APPLY THE OH RATE FOR EACH
PRODUCT
Overhead Cost Allocated to each unit of Product X and
Product Y

DIRECT LABOR
PRODUCT OH RATE HOURS PER OH PER UNIT
UNIT

X Php 70.00 1hr Php 70.00

Y Php 70.00 1hr Php 70.00

3 APPLY THE OH RATE FOR EACH
PRODUCT
Unit Cost for Product X and Product Y
PRODUCT X PRODUCT Y

Direct Materials Php 50.00 Php 30.00

Direct Labor 34.00 34.00

Allocated OH 70.00 70.00

Unit Cost Php 154.00 Php 134.00

 PRACTICE
PROBLEM
A company manufactures vacuum cleaners and floor
polishers. The company produces 20,000 vacuum cleaners and
2,000 floor polishers annually. The total manufacturing OH is
Php 3,500,000 and direct labor costs of php 40.00 per hour.
Costs incurred are as follows:
 PRACTICE
PROBLEM
VACUUM CLEANERS FLOOR POLISHERS

Direct Materials (units) 350.00 250.00

Direct Labor Hours (units) 3 hrs 2 hrs

Required:
1. The overhead cost allocated for a unit for each
product
2. The unit cost for each product
1 DETERMINE THE TOTAL BUDGETED
PLANT-ALLOCATION BASE
ANNUAL DIRECT LABOR TOTAL DIRECT
PRODUCT
PRODUCTION HOURS PER UNIT LABOR HOURS

Vacuum Cleaner 20,000 units 3 hrs per unit 60,000 hours

Floor Polishers 2,000 unit 2 hrs per unit 4,000 hours

Plant-Wide Allocation Base 64,000 hours

2DETERMINE THE SINGLE
PLANT-WIDE OH RATE
OH rate
 

OH rate
 

OH Rate = 54.69 per direct labor

hour
3 APPLY THE OH RATE FOR EACH
PRODUCT
Overhead cost allocated to each unit of vacuum cleaner
and floor polisher
DIRECT LABOR
OVERHEAD
PRODUCT HOURS PER OH PER UNIT
RATE
UNIT

Vacuum Cleaner Php 54.69 3 hrs Php 164.07

Floor Polishers Php 54.69 2 hrs Php 109.38

3 APPLY THE OH RATE FOR EACH
PRODUCT
Unit cost of Product X and Y

VACUUM CLEANER FLOOR POLISHER

Direct Materials 350.00 250.00

Direct Labor 120.00 80.00

Allocated OH Php 164.07 Php 109.38

Unit Cost Php 634.07 Php 439.38

ACTIVITY – BASED
COSTING (ABC)
A method of costing that
assigns indirect costs to
products/services based on the
activities required to make
them.

It relates the incurrence of the

cost to the activities that
caused them.
 ACTIVITY – BASED COSTING
(IMPLEMENTATION)

1 Identify the COST DRIVERS, COST

POOLS and ACTIVITY CENTERS

2 Calculate the pre-determined

overhead (pool) rates for each
identified activity

3 Allocate OH cost to the

products on the basis of the rates
computed
 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS

Allocation of
Identification Allocation of
Identification OH
OH

MAJOR COST
PRODUCT
ACTIVITIES DRIVERS
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS
An event, task, or unit of work with a specified
purpose

UNIT-LEVEL BATCH-LEVEL
ACTIVITIES ACTIVITIES

ACTIVITY PRODUCT-LEVEL FACTORY-LEVEL

ACTIVITIES ACTIVITIES
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS
causes cost to be incurred each time it occurs

No. of units No. of direct

produced labors
VOLUME-
BASED No. of machine No. of material
hours costs

No. of batches Processing time

COST per unit
DRIVERS NON-VOLUME-
BASED
No. of design No. of product
changes designs
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS

1 Degree of Correlation

2 Cost of Measurement

COST
DRIVERS 3 Behavioral Effects
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS

MATERIAL
ASSEMBLY SET-UP INSPECTION HANDLING

Number of
Number of Set- Number of Number of
Direct Labor
Ups Inspections Moves
Hours
 ILLUSTRATIVE
EXAMPLE
A company produces two products namely, Product X and Product Y.
The budgeted factory overhead is Php 2,450,000.00. The firm produces
30,000 and 5,000 units of X and Y, respectively. Both products require
one hour of direct labor to complete, costing Php 34.00 per hour. Direct
materials per unit costs Php 50.00 and Php 30.00 for X and Y,
respectively.

Required:
a. Compute for the overhead cost allocated for a unit of
Product X and Y.
b. Compute for the unit cost.
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS
EXPECTED USE OF
ESTIMATED
ACTIVITY CENTERS COST DRIVERS COST DRIVER PER
OVERHEAD
ACTIVITY

Setting-up machines 1 200 000 Number of Set-ups 3 000 set-ups

Number of Machine
Machining 2 000 000 100 000 machine hours
Hours

Inspecting 400 000 Number of Inspections 4 000 inspections

Php 3 600 000

2 CALCULATE THE PRE-DETERMINED OVERHEAD
(POOL) RATES FOR EACH IDENTIFIED ACTIVITY
 
Activity-Based OH Rate

EXPECTED USE OF
ESTIMATED ACTIVITY-BASED OH
ACTIVITY CENTERS COST DRIVER PER
OVERHEAD RATE
ACTIVITY

Setting-up machines 1 200 000 3 000 set-ups Php 400.00

Machining 2 000 000 100 000 machine hours Php 20.00

Inspecting 400 000 4 000 inspections Php 100.00

Php 3 600 000

3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Suppose that the cost drivers were consumed as follows per
product

EXPECTED USE OF
ACTIVITY
COST DRIVERS COST DRIVER PER FOR PRODUCT X FOR PRODUCT Y
CENTERS ACTIVITY

Setting-up machines Number of Set-ups 3 000 set-ups 1 000 2 000

Number of Machine 100 000 machine

Machining 60 000 40 000
Hours hours

Number of
Inspecting 4 000 inspections 1 000 3 000
Inspections
3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Product X
EXPECTED USE OF
ACTIVITY-BASED OH ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
RATE COSTS
ACTIVITY

Setting-up machines 1 000 Php 400.00 400 000.00

Machining 60 000 Php 20.00 1 200 000.00

Inspecting 1 000 Php 100.00 100 000.00

Total: Php 1 700 000.00

Overhead Cost per Unit = 1,700,000/30,000 = Php 56.67

3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Product Y
EXPECTED USE OF
ACTIVITY-BASED OH ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
RATE COSTS
ACTIVITY

Setting-up machines 2 000 Php 400.00 800 000.00

Machining 40 000 Php 20.00 800 000.00

Inspecting 3 000 Php 100.00 300 000.00

Total: Php 1 900 000.00

Overhead Cost per Unit = 1,900,000/5,000 = Php 380.00

COMPARISON OF PRODUCT COST BASED ON
TRADITIONAL AND ACTIVITY-BASED COSTING

PRODUCT X PRODUCT Y

Manufacturing Cost Traditional ABC Traditional ABC

Direct Materials 80.00 80.00 60.00 60.00

Direct Labor 24.00 24.00 24.00 24.00

Overhead 60.00 34.00 60.00 190.00

Total Unit Cost Php 164.00 Php 138.00 Php 144.00 Php 274.00
PRODUCT COST DISTORTION

Pricing
Errors

Errors in
Decisions
 ILLUSTRATIVE
EXAMPLE
A company manufactures chairs and desks. The firm
allocates its budgeted factory overhead of Php 720,000.00 as
follows per major activity: fabrication, Php 360,000.00;
assembly, Php 240,000.00; Set-up, Php 40,000.00 and material
handling, Php 80,000.00. Annual production for the chair and
desk is 8,000 and 8,750, respectively.
 ILLUSTRATIVE
EXAMPLE
FABRICATION ASSEMBLY MATERIAL
SET-UP
PRODUCT (IN DIRECT (IN DIRECT LABOR HANDLING
(NO. OF SET-UPS)
LABOR HOURS) HOURS) (NO. OF MOVES)

Chair 7,000 17,000 115 80

Desk 17,000 7,000 135 240

Total 24,000 24,000 250 320

Required:
Find the overhead cost allocated per unit of
chair and desk.
2 CALCULATE THE PRE-DETERMINED OVERHEAD
(POOL) RATES FOR EACH IDENTIFIED ACTIVITY
 
Activity-Based OH Rate

EXPECTED USE OF
ACTIVITY BASED OH
ACTIVITY CENTERS ESTIMATED OH COST DRIVER PER
RATE
ACTIVITY

Fabrication 360,000 24,000 dlh Php 15 per hour

Assembly 240,000 24,000 dlh Pho 10 per hour

Set-ups 40,000 250 set-ups Php 160 per set-up

Material Handling 80,000 320 moves Php 250 per move

Total = Php 720,000

3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Chair
EXPECTED USE OF
ACTIVITY BASED OH ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
RATE COSTS
ACTIVITY

Fabrication 7,000 dlh Php 15 per hour 105,000

Assembly 17,000 dlh Pho 10 per hour 170,000

Set-ups 115 set-ups Php 160 per set-up 18,400

Material Handling 80 moves Php 250 per move 20,000

Total = Php 313,400

Overhead Cost per Unit = 313,400/8,000 = Php 39.18

3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Desk
EXPECTED USE OF
ACTIVITY BASED OH ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
RATE COSTS
ACTIVITY

Fabrication 17,000 dlh Php 15 per hour 255,000

Assembly 7,000 dlh Pho 10 per hour 70,000

Set-ups 135 set-ups Php 160 per set-up 21,600

Material Handling 240 moves Php 250 per move 60,000

Total = Php 406,600

Overhead Cost per Unit = 406,600/8,750 = Php 46.47

 ACTIVITY-BASED
TRADITIONAL COSTING
COSTING
volume costing activity-based costing

OH are by unit level costs activities drive overhead costs

less accurate cost information more accurate cost information
LOW proportion of OH as to direct HIGH proportion of OH as to direct
material and direct labor material and direct labor
high proportion of unit-level costs high proportion of non-unit-level costs
less accurate in automated environments with more accurate for automated environments
diverse products and diverse products
less expensive more expensive
 ADVANTAGES OF ABC

Leads to cost pools Enhanced

Control
Better
Management Decisions
DISADVANTAGES OF ABC

ABC can be expensive to use

Some arbitrary allocations continue

 ADDITIONAL NOTES ON IMPLEMENTING
ACTIVITY-BASED COSTING
• Significant amount OH are allocated using only one cost pool
• Product lines differ greatly in volume
• Product lines are numerous
• Products that a company is well suited to make and sell, show small
profits
• The manufacturing process has changed significantly
 ILLUSTRATIVE
EXAMPLE
Mr. A owns a manufacturing firm, the firm incurs about 860,000 in
manufacturing overhead costs each month which had been allocated to individual
product lines based on their relative shares of direct labor hours. The company
works about 100,000 direct labor hours per month and is considering the use of
ABC. The following information regarding the cost pools and drivers has been
developed:

BUDGETED
ACTIVITY COST DRIVER BUDGETED COST
ACTIVITY
Assembly Direct Labor Hours 520,000 100,000
Quality Control No. of Batches 280,000 500
Engineering or design
Product Design 60,000 120
changes
860,000
 ILLUSTRATIVE
EXAMPLE
The following data regarding two product lines of the company are presented:

ACTIVITY COST DRIVER PRODUCT A PRODUCT B

Assembly Direct Labor Hours 1,600 200

Quality Control No. of Batches 4 12

Engineering or design
Product Design 2 24
changes
 ILLUSTRATIVE
EXAMPLE
Product A are produced in large batches, while product B are specialty
line that only a few customers buy.

Required:
a. Overhead to be allocated to each product line using
DLH
b. Overhead to be allocated to each product line using
ABC
1 DETERMINE THE TOTAL BUDGETED
PLANT-ALLOCATION BASE

BUDGETED
ACTIVITY COST DRIVER BUDGETED COST
ACTIVITY

Assembly Direct Labor Hours 520,000 100,000

Quality Control No. of Batches 280,000 500

Engineering or design
Product Design 60,000 120
changes

860,000
2 DETERMINE SINGLE PLANT-
WIDE OH RATE
O
 

OH Rate
 

OH Rate = Php 8.60 per DLH

3 APPLY THE OH RATE
TOTAL DIRECT TOTAL OH
PRODUCT OVERHEAD RATE
LABOR HOURS ALLOCATED TO

Product A Php 8.60 1,600 Php 13,760.00

Product B Php 8.60 200 Php 1,720.00

Answer:
Php 13,760.00 OH cost to the whole product line of A;
Php 1,720.00 to product line B
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS
Estimated Budgeted OH and use of Cost Driver per activity

BUDGETED
ACTIVITY COST DRIVER BUDGETED COST
ACTIVITY

Assembly Direct Labor Hours 520,000 100,000

Quality Control Number of Batches 280,000 500

Engineering or Design
Product Design 60,000 120
Changes

Php 860,000
1 IDENTIFY THE COST DRIVERS, COST
POOLS AND ACTIVITY CENTERS
Use of cost driver per product line

ACTIVITY COST DRIVER PRODUCT A PRODUCT B

Assembly Direct Labor Hours 1,600 200

Quality Control Number of Batches 4 12

Engineering or Design
Product Design 2 24
Changes
2 CALCULATE THE PRE-DETERMINED OVERHEAD
(POOL) RATES FOR EACH IDENTIFIED ACTIVITY
 
Activity-Based OH Rate

EXPECTED USE OF
ACTIVITY ACTIVITY-BASED
ESTIMATED OH COST DRIVER PER
CENTERS OH RATE
ACTIVITY
Assembly 520,000 100,000 5.20 per DLH

Quality Control 280,000 500

560.00 per batch
Product Design 60,000 120
500.00 per change
Total: Php 860,000
3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Product A

EXPECTED USE OF
ACTIVITY-BASED ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
OH RATE COST
ACTIVITY

Assembly 1,600 5.20 per DLH 8,320.00

Quality Control 4 560.00 per batch

2,240.00
Product Design 2 500.00 per change
1,000.00

Total: Php 11,560.00

3 ALLOCATE OH COST TO THE PRODUCTS
ON THE BASIS OF THE RATES COMPUTED
Allocation of Overhead Cost for Product B

EXPECTED USE OF
ACTIVITY-BASED ALLOCATED OH
ACTIVITY CENTERS COST DRIVER PER
OH RATE COST
ACTIVITY

Assembly 200 5.20 per DLH 1,040.00

Quality Control 12 560.00 per batch

6,720.00
Product Design 24 500.00 per change
12,000.00

Total: Php 19,760.00

ARGUMENTS FOR AND
AGAINST THE USE OF
VARIABLE COSTING
 1. Variable costing reports are
ARGUMENT simpler and more
understandable.
S FOR THE
USE OF
VARIABLE 2. Data needed for break-even
and cost-volume-profit analysis
COSTING are readily available.

3. The problems involved in

allocating fixed costs are
eliminated.
ARGUMENT 4. Variable costing is more
compatible with the standard
S FOR THE cost accounting system.
USE OF
VARIABLE
COSTING 5. Variable costing reports
provide useful information for
pricing decisions and other
decision-making problems
encountered by management.
ARGUMENT 1. Segregation of cost into
fixed and variable might be
S AGAINST difficult, particularly in the
THE USE OF case of mixed costs.
VARIABLE
COSTING 2. The matching principle is
violated by using variable
costing which excludes fixed
overhead from product costs
and charges the same to
period costs regardless of
production and sales.
ARGUMENT
3. With variable costing,
S AGAINST inventory costs and other
THE USE OF related accounts, such as
VARIABLE working capital, current ratio,
and acid-test ratio are
COSTING understand because of the
exclusion of fixed overhead in
the computation of product
cost.
ILLUSTRATI
During the year 200A, Wouie
VE Corporation’s production was
EXAMPLE equal to its normal capacity of
1,000 units. It sold 900 units
at a price of P50 per unit.
ILLUSTRATIVE
EXAMPLE
The following costs were incurred during the year:

Total Cost Cost per Unit

Direct Materials P 12,000 P 12
Direct Labor 10,000 10
Direct Variable Factory OH 8,000 8
Fixed Factory Overhead 6,000 6
Variable Selling and Admin. 4,500 *5
Fixed Selling and Admin. 3,000 3
REQUIRED
:
Product costs per unit under absorption
and variable costing 

Income under absorption costing

Income under variable costing

Computation of and accounting for the

differences in income
Product costs per unit under absorption and
variable costing 

Absorption costing Variable costing

Direct Materials P 12 P 12

Direct Labor 10 10

Variable Factory Overhead 8 8

Fixed Factory Overhead 6 -

Product cost per unit P 36 P 30

Income under absorption costing

Sales (900*P50) P 45,000

Less: Cost of goods sold 32,400
Gross Income P 12,600
     Less: Selling and Admin. Expenses
Variable P 4,500
Fixed 3,000 7,500
Income – absorption costing P 5,100
ALLOCATION OF THE FIXED OVERHEAD
COST:
Total fixed overhead (1000 units @ P6 per unit) P 6,000
Charge to cost of goods sold (900 units sold x P6
per unit) P 5,400
Allocated to inventory cost (100 unsold units x P6)
600
Cost of ending inventory:
Number of units (1,000 units produced – 900 units 100
sold)
X Cost per unit - absorption 36
Cost of ending inventory 3,600
Income under variable costing

Sales  P 45,000
Less variable costs:
Cost of goods sold (900 x P30) *P 27,000
Selling and administrative (900 x P5) 4,500 31,500
Contribution margin P 13,500
Less fixed costs:
Factory Overhead **P 6,000
Selling and administrative 3,000 9,000
Income – variable costing P 4,500
COST OF ENDING INVENTORY

Number of units 100

X Cost per unit - absorption P 30

Cost of ending inventory *P 3,000

COMPUTATION OF AND ACCOUNTING
FOR THE DIFFERENCES IN INCOME

Absorption costing income P 5,100

Variable costing income 4,500

Difference in income P 600

 STANDARD COST
UNDER ABSORPTION
AND VARIABLE
COSTING
 1. The standard cost of goods
sold is adjusted to actual costs
Standard Cost
Under
Absorption and 2. In absorption costing, both
Variable Costing the variable and fixed
manufacturing cost variances
are used

3. In variable costing, only the

variable manufacturing cost
variances are used
STANDARD COSTING
uses standard costs deemed necessary to manufacture a
single unit of product or perform a single service

DIRECT DIRECT MANUFACTURING

MATERIAL LABOR OVERHEAD
 STANDARD COSTING SYSTEM

1 Product Costing
2 Controlling Cost
ADVANTAGES 3 Decision Making
 STANDARD COSTING SYSTEM

1 Time Consuming
2 Labor Intensive
DISADVANTAGES
3 Expensive
 STANDARD
ACTUAL COST
COST
Direct Material 4.0 Direct Material 3.0
Direct Labor 2.0 Direct Labor 2.0
Factory Overhead 3.0 Factory Overhead 2.0
TOTAL STANDARD COSTS 9.0 TOTAL ACTUAL COSTS 7.0

Standard Costs 9.0

Actual Costs 7.0

FAVORABLE
VARIANCE 2.0
VARIANCE
 STANDARD ACTUAL COST
COST
Direct Material 4.0 Direct Material 5.0
Direct Labor 2.0 Direct Labor 4.0
Factory Overhead 3.0 Factory Overhead 3.0
TOTAL STANDARD COSTS 9.0 TOTAL ACTUAL COSTS 12.0

Standard Costs 9.0

Actual Costs 12.0

UNFAVORABLE
VARIANCE (3.0)
VARIANCE
VARIANCE ANALYSIS

FAVORABLE
VARIANCE
Standard Cost > Actual Cost

UNFAVORABLE
VARIANCE
Standard Cost < Actual Cost