Chapter 4: Cost Variances For Direct Materials And Labor Flashcards

1
Q

Reasons for flexible budget variance for variable costs

A
  • difference between budgeted and actual input prices

- difference in efficiency, actual amount of direct materials used vs budgeted

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2
Q

Inputs

A

Materials used in the production process

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3
Q

Outputs

A

Units of finished product

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4
Q

Flexible budget

A

Standard quantity x standard price

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5
Q

Standard quantity

A

Flexible budget concept. Quantity of inputs that would have been budgeted had the budget correctly anticipated the actual volume of output

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6
Q

Standard price

A

Budgeted price per unit

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7
Q

Flexible budget variance

A

(Actual quantity x actual price) - (standard quantity x standard price)

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8
Q

Actual quantity x standard price

A

What company “should” have spent for the actual quantity used at the budgeted price

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9
Q

Price variance

A

Actual quantity x (actual price - standard price)

Total impact on the cost of production caused by the fact that the actual price per unit of input differed from the budgeted price

If AP- SP is positive then price variance is unfavorable (paid more than budgeted)

If AP-SP is negative then price variance is favorable (paid less than budgeted)

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10
Q

Quantity variance

A

= Standard price x (Actual Quantity - Standard Quantity)

Aka: usage variance

The total impact on the cost of production caused by the fact that the quantity of inputs used to make each unit of output differed from the budget.

If AQ-SQ is positive then variance is unfavorable (quantity used was more than “should” have been used)

If AQ-SQ is negative then the variance is favorable (quantity used was less than “should” have been used)

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11
Q

Flexible budget variance

A

The difference between the flexible budget and the actual costs

= Price variance + quantity variance

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12
Q

Interactive price quantity variance

A

Occurs when both actual price and actual quantity differ from standard price and standard quantity

Customarily assigned to price variance or reported elsewhere

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13
Q

Actual Quantity and timing

A

Depending on when the price variance is recognized AQ could be AQ purchased or AQ used.

Recognition of price variance at purchasing is more timely.

Sum of price variance + quantity variance may not = total flexible budget variance

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14
Q

Rate or wage rate variance

A

= AQ x (AP - SP)

= Actual labor hours used x (actual wage rate - budgeted wage rate)

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15
Q

Efficiency variance

A

For direct labor

= SP x (AQ - SQ)

= Budget wage rate x (actual labor hours - flexible budget labor hours)

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16
Q

Flexible budget variance for labor

A

Always = wage rate variance + efficiency variance