BEC 5 - Cost Accounting & Performance Measurement Flashcards
Standard Costing
Standard costs are predetermined target costs which should be attainable under efficient conditions. Standard costs are used to aid in the budget process, pinpoint trouble areas, & evaluate performance.
Types of Standard Costs
Standard Cost
Standard Quantity
Standard Rate
Standard Hours
POHR
Standard Cost - the amount an entity expects to sped to produce a single unit. Difference between standard cost & actual costs produce direct materials price variance.
Standard Quantity - the number of units of raw material an entity expects to use in the production of a single unit. Difference between SQ and AQ used produces direct materials usage variance.
Standard Rate - the amount an entity expects to pay for an hour for DL. Difference between standard rate of pay & actual rate of pay produces direct labor rate variance.
Standard Hours - the number of DL hours an entity expects to use in the production of a single unit. Difference between SH & Actual Hours used produces a direct labor efficiency variance.
POHR - The amount of overhead to apply (usually based on DL hours). Differences between POHR & Actual O/H produces overhead variances.
Variance Analysis (SAD)
What are the 4 types?
PURE
Variance Analysis (SAD): Standard - Actual = Difference
- DM Price Variance (purchasing) = AQ(SP-AP)
- DM Usage Variance (production) = SP(SQ-AQ)
- DL Rate Variance (personnel) = AH(SR-AR)
- DL Efficiency Variance (production) = SR(SH-AH)
Direct Materials Price Variance (DMPV)
&
Direct Materials Usage Variance (DMUV)
DMPV = AQP(SP-AP)
- AQ - Actual Quantity Purchased
- SP - Standard Price
- AP - Actual Price
DMUV = SP(SQA-AQU)
- SP - Standard Price
- SQA - Standard Quantity Allowed
- AQU - Actual Quanitity Used
Direct Labor Rate Variance (DLRV)
&
Direct Labor Efficiency Variance (DLEV)
DLRV = AH(SR-AR)
- AH - Actual Hours worked
- SR - Standard Rate of pay
- AR - Actual Rate of pay
DLEV = SR(SH-AH)
- SR - Standard Rate of pay
- SH - Standard hours allowed
- AH - Actual hours worked
What are the three main Overhead Variances?
(SEVen)
- Spending Variance = ((ADLH x PVOHR) + Budgeted FC) - Actual Overhead
- Efficiency Variance = PVOHR x (SDLH - ADLH)
- Volume Variance = (SDLH x PFOHR) - Budgeted FC
What are the SEVen overhead Variances?
- ) Net Overhead Variance (Actual O/H - Applied O/H)
- Budget (Controllable) (V,F)
- Volume (Non-Controllable) (F)
- Volume Variance (F)
- Efficiency Variance (V)
- Spending Variable Variance (V)
Spending Fixed Variance (F)
Overhead Spending Variance (OSV)
Fixed vs. Variable
OSV - measures whether the amount of actual variable overhead being spent per hour is more or less than the amount budget, & whether the actual amount of fixed overhead incurred is more or less than the budgeted amount.
OSV = ((PVOHR x ADLH) + Budgeted FC) - Actual Overhead
- ADLH - Actual direct labor hours
- PVOHR - Predetermined variance overhead rate
Overhead Efficiency Variance (OEV)
OEV - similar to the labor efficiency variance. It measures whether the amount of actual hours used for the units manufactured required more or less than the number of hours budged.
OEV = PVOHR x (SDLH - ADLH)
- PVOHR - Predetermined overhead rate
- SDLH - Standard direct labor hours
- ADLH - Actual direct labor hours
Overhead Production Volume Variance (OVV)
OVV - A measure of the benefit, in the form of reduced fixed cost per unit, that results form increases in volume & the corresponding adverse effects, in the form of increased fixed costs per unit, that results from decreases in volume.
OVV = (SDLH x PFOHR) - Budgeted FC
or
OVV = Applied OH - Budget FC
- PFOHR - Predetermined fixed overhead rate
- SDLH - Standard direct labor hours
What are the 2 types of Costing Systems?
Job Order Costing - a system for allocating costs to groups of unique products. Applicable to customer-specified products. Each job becomes a cost center for which costs are accumulated. Generally applied when output is relatively expensive & units are heterogeneous.
Process Costing - a system of accounting for manufacturing costs under which costs are accumulated by period & unit costs is measured by dividing costs incurred by equivalent production. Generally applied when output is inexpensive & units are homogeneous. Two methods:
- Weighted Avg Method
- FIFO
Process Costing Approach
Weighted Average
vs.
FIFO
Goal of the two approaches is to initially find the Cost per Unit & total Equivalent Units (EU) in order to find out certain balances such as cost of goods completed, cost of goods transferred, & ending inventory.
Weighted Average
Cost Per Unit = Total Cost (TC) / Total Equivalent Units (EU)
- TC = Costs this period + Costs of beginning WIP
- EU = Completed Units + (Ending Units x % to Complete)
FIFO
Cost Per Unit = Costs this Period / Units worked on This Period
- Costs this Period = Costs of the units “Started this period”
- EU is ONLY Units Worked on “This Period”
- EU = (Beg Units x (1-%Completed)) + (Completed - Beg) + (Ending x % to Complete)
NOTE: The calculation of Equivalent Units (EU) for WA & FIFO are different.
Transfer Price
When a division of a company trades with another division of the same company, the price set on the goods or services is called the transfer price.
What are the common methods of allocating joint costs?
Common methods of allocating joint costs include:
- Physical units method
- Relative sales value at split-off method
- Net realizable value method.
Normal Spoilage
vs.
Abnormal Spoilage
Normal Spoilage is a product cost & is inventoriable.
Abnormal Spoilage is a period cost & is expensed.
Joint Product Costing
A method for allocating joint costs systematically & fairly among joint products and, if appropriate, by-products. Costs may be allocated either through:
- Units of Volume of Output (not tested)
- Cost = Total Product Cost / Units Produced per Product
- Relative Sales Value at Split-Off.
- Main products to be allocated LESS the by product cost
- SV@SO = Sales Value - Separable Costs
- Divide costs of per product relative to the sales value
Relative Sales Value Method
(Joint Product Costing)
Under the Relative Sales Value Method:
- Sales Value of each joint product is determined (Sales Price x #Products Produced)
- The Sales Value are then reduced by Seperable Costs, resulting in the Relative Sales Value.
-
Relative Sales Values are then combined & joint cost is solved depending on the percentage of the RSV.
- NOTE: If there is a by-product. Relative Sales Value of the by-product is reduced from the Joint costs first & the rest of the Joint costs are allocated to the main products.
A CPA would recommend implementing an activity-based costing system under which of the following circumstances?
The client produced products that heterogeneously consume resources.
The basic assumption of activity-based costing (ABC) is that
a. All manufacturing costs vary directly with units of production.
b. Products or services require the performance of activities, and activities consume resources.
c. Only costs that respond to unit-level drivers are product costs.
d. Only variable costs are included in activity cost pools.
You answered correctly
Correct! Activity-based costing (ABC) assumes that products create demand for activities and that activities create costs.
Which of the following is true about activity-based costing?
a. It should not be used with process or job costing.
b. It can be used only with process costing.
c. It can be used only with job costing.
d. It can be used with either process or job costing.
You answered correctly
Correct! Activity-based costing is a method for assigning costs by identifying activities and assigning the costs of the activities to the products that generate the activities. Activity-based costing can be used with either process or job costing.
A company has gathered the following information from a recent production run:
Standard variable overhead rate $10
Actual variable overhead rate $8
Standard process hours 20
Actual process hours 25
What is the company’s variable overhead spending variance?
a. $50 unfavorable
b. $50 favorable
c. $40 unfavorable
d. $40 favorable
You answered incorrectly
Incorrect! The variable overhead spending variance is the difference between the standard variable overhead rate and the actual variable overhead rate, multiplied by the actual usage.
(Standard variable overhead rate – Actual variable overhead rate) x Actual usage
= Variable overhead spending variance
($10 – $8) x 25 = $50 Favorable variance
