Unit 6: Standard Costs and Variances Flashcards
Define Responsibility Accounting.
A system of evaluating performance; managers are held accountable for the costs, revenues, assets, or other elements over which they have control.
Define Cost Variance.
The difference between the actual cost and the standard (budgeted) cost.
What does an ‘F’ stand for when next to a variance calculation?
Favorable
What does a ‘U’ stand for when next to a variance calculation?
Unfavorale
When accounting for materials variance, how are inventories recorded?
Inventories are recorded at standard costs, not actual costs.
When accounting for materials variance, how are unfavorable variances recorded vs. favorable?
An unfavorable variance is like an expense - it is recorded as a debit.
A favorable variance is like a revenue - it is recorded as a credit
What happens to cost variances at the end of the period?
Cost variances are closed to COGS at the end of the period.
How do you calculate a Materials Price Variance?
(Standard Price - Actual Price) x Actual Quantity
The difference between the price that was actually paid to purchase materials and the price that should have been paid given the established standard price. It is the responsibility of the purchasing department.
How do you calculate a Materials Quantity Variance?
(Standard Quantity Allowed - Actual Quantity Used) x Standard Price
The difference between the standard cost of materials that were actually used and the cost of the materials that should have been used given the established production standard. It is the responsibility of the production supervisor.
How do you calculate a Labor Rate Variance?
(Actual Labor Rate - Standard Labor Rate) x Actual Hours Worked
The difference between the wage rate that was acutally paid to the workers and the rate that should have been paid given the established standard wage rate. It is the responsibility of the person in charge of assigning workers (and their associated wage rate) to projects.
How do you calculate Labor Efficiency Variance?
(Actual Hours Worked - Standard Hours) x Standard Rate
The difference between the standard cost of labor given (the actual number of hours worked) and the labor cost that should have been used given the established production standard. It is the responsibility of the person who oversees the work of the laborers.
How do you calculate Manufacturing Overhead Spending Variance?
Actual Amount Paid - (Standard Rate x Actual Hours Worked)
The difference between the amount that was actually spend on variable overhead and the amount that should have been spent given the number of labor hours worked. Recall that labor hours are often considered to be a a variable overhead cost driver. It is the responsibility of all managers throughout the production facility, with ultimate responsibility belonging to the plant manager.
How do you calculate Manufacturing Overhead Efficiency Variance?
(Actual Hours - Standard Hours) x Standard Rate
The difference between the standard cost of variable overhead, given the actual number of hours worked and the variable overhead cost that should have been used and given the established production standard. This cost variance is driven by how efficiently the labor workers work. It is the responsibility of the person who oversees the work of the laborers.
