Cost Accounting Flashcards
What is price variance? How to calc?
Price variance is essentially assit management in having control with the purchase department in having excessive material cost. This allows management to have control over cost and making sure cost is not over exceeding the businesses budget.
To calc price variance we need to know the difference between the “Actual unit price” - “Standard unit price” * actual quantity purchased. When the actual unit price is less than the standard unit price then the variance is “Favorable” for the business. Purchasing department did a good job on purchasing material at a low cost However, if the actual unit price is more than the standard unit price then the variance is “Unfavorable” and management would need to hold the purchasing department accountable for excessive material cost and figure what they can do to decrease the material costs
What type of industries may use a standard cost system for cost control
Standard cost system is often used to evaluate production efficiency use of resources.Standards are established for direct materials direct labor, and manufacuring overhead. Usually at the end of the period standards are compared to actual results to determine the variance. When the actual is more than the standard the variance is “Favorable” and when the actual is less than the standard then the variance is “Unfavorable”
Standard cost are also used for a job order or process costing environment process costing used for mass production environment Job order costing is used for allocating costs of unique G&S
What is price variance? How to calc?
Material price variance is way for management to have control on the purchasing department for excessive material cost
to calc material price variance you need to use the difference betweeen the “Actual price” and “Standard price” mutipled by the “actual quantity purchased. When the actual price is less than the standard price the variance is “Favorable” for the business. Management needs to look into whenever the variance is favorable or unfavorable because this will allow them to understand the cause of and take action needed.
The material variance consists of two type of variances “Price variance” and “Quantity variance”
What is direct labor usage variance?
Direct labor usage variance is essentially assist management holds the factory foreperson accountable for inefficient use of labor
Actual labor used - Standard labor allowed * standard rate used
What is material efficiency variance ? How to calc?
Material efficiency variance is used by management in maintaning control over the amount of material used in the production process.
Material efficiency is calculated by the difference between “Actual quantity used” and “Standard quantity allowed and multiple by the Standard cost per unit
When the actual quantity used exceeds the standard quantity allowed then the variance will be “unfavorable because the business is over using the materials, in result they would need to figure how to cut on usage
What type of variance would a purchase manager mostly likely influence? why
A purchase manager would most likely influence a “Direct material price” because a purchase Manager is responsible for ordeing raw materials. So they also have a influence on the price since they have negiatiations with the suppliers for the best prices.
What is standard hours used? How is it used for calculations for variances?
Standard hours used is the number of hours used to produce a unit of inventory
Standard costs are predetermined target amounts that should be attained under efficient performance. Standard costs aid in budget process, pinpoint trouble areas of production, and evaluate performance
What is Direct Labor rate variance? How to calc it?
Direct labor rate variance assits management in control of the labor rates and how efficient workers in for the business productions.
To calc the Direct labor rate variance we need to know the difference of the “Actual rate per hour” and the “Standard rate per hour allowed” next we need to know the standard rate this will allow us to know the Direct labor rate variance or “Actual hours”
Variance analaysis essentially assists management in maintaining control over business production costs for material, labor, overhead. The labor price variance is the difference between the actual and standard rate hourly rate mutiplied by actual hours
What is Direct material usage variance? How to calc Direct labor usage?
Direct material usage variance assits management to figure whether the material used for the production is ineffiency or efficient.
To calc the direct material usage variance is the difference between the actual material used and the standard material allowed then you mutiple the standard cost per unit.
When the Actual material used is less than the standard material allowed this inform management that their inefficient with their material used, which in result causes a “Unfavable” variance. However, when the standard quantity allowed is more than the standard material used then management knows the material usage is efficient and the variance is “Favorable”
What is the most likely cause of a “Unfavorable” variance? What is labor quantity efficiency variance?
Labor quanity variance is when there is a difference between the actual hours used and the standard hours allowed for the units produced. Then the difference is mutipled by the Standard rate per hour. The resulting variance assists management understand and control their usage of labor
Whenever there’s a excessive or “unfavorable” variance this tells management that the machinary is poorly maintaned, or inadequantelt trained workers , or poor raw materials used in productions. This also tells management that they need to train their workers or hire more skilled workers for the job
What is Direct labor efficiency variance? How to calc?
Direct labor labor efficiency informs management whether their labor was effiency or not dependant on the actual hours used and standard hours allowed and the standard rate per hour.
When the actual hours used is higher than the standard hours allowed that causes a unfavorable variance which means the labor was not efficienctly used. However, when the actual hour used is less than the standard hours allowed then an favorable variance is generated causing a labor efficiency used
What is the material variance? How to calc it?
Material variance is price the production team get the materials used for productions of goods
To calc material variance you need to know the difference between the “Actual unit cost” and “Standard unit cost” mutipled by the “Actual quantity purchased. When the actual unit price is less than the standard unit price that means the variance is “Favorable” for the business. That means the business spend less money then they budgeted.
For the material price variance you may not be given all the figure you need. You will need to calc the “Standard unit cost” By using the Material quantity variance formula which is the actual quantity variance - standard quantity variance * standard unit cost = efficiency variance
For an examples actual quantity usage is 17,000 and standard quantity usage is 17,500 which gave you 500 divide by the 2500 unfavorable variance which give a Standard unit price of 5.00 per pound
Once you get the Standard unit cost we calc the actual unit cost
Actual material cost which is 70,000 / 17,500 pounds = 4.00 actual unit price. Standard unit price is 5.00 and actual unit price which is 4.00 = 1.00. Next we will do quantity is 17,500 pounds x 1.00 = 17,500 favarable for the business
What is price variance and how to calc?
Price variance is essetially the difference between the actual sales price per unit and the estimate sales price per mutipled by the total actual units sold.
When the actual sales is less than the estimated amount the variance will be “Unfavorable” meaning less revenue was collected than the anticipated. If the actual sales price is more than the estimated selling price than the variance is “favorable” meaning estimated selling price is more than the estimated amount.
What is the labor usage? How to calc?
Labor usage variance asssit management to focus on the amount of labor used with factory foreman. It also asssit them to hold them accountable for inefficiency use of labor by focusing on the difference between actual total hours and the standard hours while holding the rate constant at the standard amount
To calc the labor usage variance we need know the difference between the “Actual total hours worked” and “Standard hours allowed” mutiplied by the Standard rate per hour
What is direct labor efficiency variance? How to calc?
Direct labor efficiency variance examines whether the labor hours are being used efficiently. Managements holds the foreman accountable for inefficiency of labor used.
to calc the direct labor efficiency you need to know the difference between the actual labor hours used and the standard labor hours allowed multipled by the standard labor rate per hour. When the actual labor hours is more than the standard labor hour used a variance of “Unfavorable” this means that the foreman didn’t use the labor cost efficiently. When the actual is less than the standard rate then the variance is “Favorable” so that means they used the labor cost efficiently
