Standard Cost Variance Calculations and Analysis

 Cost of producing product or service is the total of uni Material Cost Direct Labour Cost Overhead Cost   Standard cost is the budgeted cost and against which performance is monitored so that cost control is maintained.  Each day accounting prepares reports that show:  Whether the budgeted costs were exceeded Which ones (i.e. material, labor, overhead) Variances  This data should cause appropriate corrective action to be taken.Variance Usually Calculated
 Material Price Tells how much more than budgeted (standard) price was paid (or less) for the material that was used or bought Material Usage Tells whether the quantity of material used is more than what should have been used according to the standard and what the \$ value is Labor Price Tells how much more or less was paid to workers per hour than the standard set and what the \$ value is Labor Efficiency Tells difference between the hours expended and paid for compared to what should have been if standard was met Overhead Budget Variance Difference between the actual OH cost spent and what should have been spent if budget was met Oh Efficiency Variance Difference of  what should have been spent if budget was met and what actual production should have cost if standards were met OH Volume Variance Difference due to output volume change from that planned which caused less or more fixed OH to be applied
Re Cap  -

Variances may be due to:

1. Paying more than the standard set
2. Using more quantities
3. Different production volume than anticipated

Reasons for this are numerous and must be investigated.

Analysis of Overhead Variance = OH Variance - Actual OH incurred - OH applied

Budget (Spending) Variance

Flexible Budget Allowance for

Actual Operating Level

Efficiency Variance

Flexible Budget Allowance

For Actual Operating Level

Flexible Budget Allowance

For Actual Units Produced(per standard set)

Capacity Variance

 Flexible Budget Allowance For Actual Units Produced OH Appled
 Capacity Variance  Standard Cost and OH Variance Analysis Example The Standard Cost for a product is:

 Direct Material 2 lbs. @ \$l5 per lb. \$30 Direct Labor 2 hrs. @ \$20 per hr. 40 Variable OH 2 hrs. @ \$5 10 Fixed OH 2 hrs. @ \$8 16 Total Unit Cost \$96

 Anticipated production is 7,500 direct labor hours. Fixed OH budgeted to be \$60,000.  Actual Output 6,000 Standard Labor Hours (3,000 units) Actual Variance OH Expense                            \$30,600 Actual Fixed OH Expense                                 \$62,000 Bought and used 12,000 lbs. @ \$17 lb.           \$204,000 Paid for 6,500 hrs. of Direct Labor                    \$13,000  D.M. Price Variance  (17-15) 12,000 = 24,000 UNF  D.M. Usage Variance (12,000-12,000)(15) = 0  D.L. Price Variance (21-20)(6,500) = 6,500 UNF  D.L. Efficiency Variance (6,500-3,000(2))(20) =10,000 UNF  Fixed OH Flexible Budget Variance         Actual Cost - Budget based on standard inputs allowing for actual outputs achieved         62,000         -              60,000                 =          2,000 UNF        (Fixed irrespective of volume)  Fixed OH Production Volume Variance        Budgeted Cost - Fixed OH Applied        6,000                     6,000(8)               =   12,000 U    Variable OH Flexible Budget Variance         Actual V OH Cost - Budget Based on Standard Inputs Allowed for Outputs Achieved                30,600                               6,000(5)   =  600 U  Variable OH Applied                Budget                              Applied                6,000(5)                           6,000(5)    =  0  Analysis - OH    Spent \$92,600 -    Should have if within budget 6,000(8+5) = \$78,000    14,600 U  Because worked at 6,000 instead of 7,500, did not absorb the Fixed OH fully. Fixed    60,000 (Budget)  -  6,000(8)            =  12,000  not absorbed   62,000  Actual    -  60,000 (Budget)     2,000  spent more than budget                                                                                           14,000  Variable    30,600 Actual - 20,000 (should have spent per budget)   =       600    30,000 should have spent if  -  6,000(5)   - V.OH             =        -0-                 standard was met                              applied                                                                            TOTAL           =  14,600

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