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Standard Costing & Variance Analysis

This document discusses various types of variances in standard costing and absorption versus variable costing. It covers: 1) Direct material, direct labor, and overhead variances including price, quantity, usage, efficiency, rate, volume, and yield variances. 2) Absorption costing treats all manufacturing costs as product costs while variable costing treats all costs except direct materials as period costs. 3) Net income under absorption costing will be higher than variable costing if production is greater than sales, and lower if production is less than sales. If production equals sales, net income is the same under both methods.

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Mariella Antonio-Narsico
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505 views10 pages

Standard Costing & Variance Analysis

This document discusses various types of variances in standard costing and absorption versus variable costing. It covers: 1) Direct material, direct labor, and overhead variances including price, quantity, usage, efficiency, rate, volume, and yield variances. 2) Absorption costing treats all manufacturing costs as product costs while variable costing treats all costs except direct materials as period costs. 3) Net income under absorption costing will be higher than variable costing if production is greater than sales, and lower if production is less than sales. If production equals sales, net income is the same under both methods.

Uploaded by

Mariella Antonio-Narsico
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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STANDARD COSTING &

VARIANCE ANALYSIS

DIRECT MATERIAL VARIANCES:


Actual Qty Purchased = Actual Qty USED PRICE VARIANCE
AQ x AP = xx
AQ(P) x SP = xx QTY. VARIANCE
SQ x SP = xx
(USAGE VARIANCE)

IF DM VARIANCES:
Actual Qty Purchased ≠ Actual Qty USED

AQ x AP = xx
PRICE
AQ(P) x SP = xx
VARIANCE
AQ(u) x SP = xx QTY. VARIANCE
SQ x SP = xx (USAGE VARIANCE)

OTHER APPROACH:
Price Variance : (AP-SP) x AQ
Qty. Variance : (AQ-SQ) x AP

(+) UNFAVORABLE
(-) FAVORABLE
MIX & YIELD VARIANCES:

AQ x AP = xx PRICE VARIANCE
AQ x SP = xx
AQ x WASP = xx MIX
SQ x SP = xx YIELD

𝐓𝐨𝐭𝐚𝐥 𝐒𝐭𝐝 .𝐂𝐨𝐬𝐭


 
𝐓𝐨𝐭𝐚𝐥 𝐒𝐭𝐝 . 𝐐𝐭𝐲 .

𝐓𝐨𝐭𝐚𝐥 𝐒𝐭𝐝 .𝐂𝐨𝐬𝐭


𝐱 𝐀𝐜𝐭𝐮𝐚𝐥 𝐘𝐢𝐞𝐥𝐝 (𝐨𝐮𝐭𝐩𝐮𝐭 )
 
𝐓𝐨𝐭𝐚𝐥 𝐒𝐭𝐝 .𝐘𝐢𝐞𝐥𝐝

ACTUAL COST > STD. COST


• Unfavorable Variance
• Debit Variance
• + COGS

ACTUAL COST < STD. COST


• Favorable Variance
• Credit Variance
• ( - )COGS
DIRECT LABOR VARIANCES:

AH x AR = xx RATE VARIANCE
AH x SR = xx EFFICIENCY
SH x SR = xx VARIANCE

OTHER APPROACH:
Rate Variance : (AR-SR) x AH
Efficiency Variance : (AH-SH) x AR

OTHER APPROACH:
VOLUME Variance : (AH-SHa) x SFxOR

FC = NORMAL CAPACITY
OTHER APPROACH:
EFFICIENCY Variance : (AH-SH) x SVOR
VOLUME Variance : (NH-SHa) x SFxOR

*BUDGET VARIANCE
VC(DM,DL,VOH) = TOTAL VARIANCE
FxOH = SPENDING VARIANCE
4 WAY ANALYSIS
* VARIABLE OVERSPENDING VARIANCE
ACTUAL VMO xx
- VOBAH (SVOR x AH) xx

*FIXED OVERSPENDING VARIANCE.


ACTUAL FxMO xx
- Bdgtd. FxOH (SFxOR x NH) xx

* VARIABLE EFFICIENCY VARIANCE


(AH – SH) x SVOR

* VARIABLE VOLUME VARIANCE


(NH – SH) x SFxOR

DISPOSING VARIANCES

 If the variance is INSIGNIFICANT, it should


be closed or charged to COGS.

 If the variance is SIGNIFICANT, it should be


closed or charged proportionately to COGS,
WIP and FG.
VARIABLE AND
ABSORPTION COSTING

ABSORPTION COSTING
• FULL COSTING
• CONVENTIONAL COSTING
• GAAP/ PFRS COSTING
• TRADITIONAL COSTING

VARIABLE COSTING
• DIRECT COSTING
• MARGINAL COSTING
• NON- GAAP COSTING

THROUGHPUT COSTING
A.K.A. SUPER-VARIABLE COSTING
A product costing method that treats all costs, except
direct materials, as period costs. In other words,
under this costing ONLY DIRECT MATERIALS are
treated as PRODUCT COSTS. This costing method
results in a lower amount of manufacturing costs
being inventoried than variable or absorption
costing.
 
NORMAL COSTING
Normal capacity is the average level of activity over
a long period of time or over a budgeting period.
This is used in computing STANDARD FIXED
COSTS PER UNIT.
RULES ON NET INCOME
 If PRODUCTION > SALES
 Absorption Costing Income > Variable
Costing Income
 Ending Inventory > Beginning Inventory
 
 If PRODUCTION < SALES
 Absorption Costing Income < Variable
Costing Income
 Ending Inventory < Beginning Inventory
 
 If PRODUCTION = SALES
 Absorption Costing Income = Variable
Costing Income
 Ending Inventory = Beginning Inventory
STANDARD COSTING APPLICATION

 COGS and inventories are initially measured at


standard.
 Thereafter, variances should be disposed. (Please see
discussion on standard costing regarding disposition
of variances). If the variance is immaterial it is
disposed to COGS

Unfavorable variances – added to COGS

Favorable variances – deducted from COGS

 The most common variance encountered on this topic


is VOLUME VARIANCE and computed as follows:
RECONCILIATION OF NET INCOME
In reconciling or converting the net income
from absorption costing to variable costing and
vice versa, please use the below template
(ABEV TEMPLATE)

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